Opinion — United States v. American Tobacco Co.

Supreme Court brief1911

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UNITED STATES OF AMERICA v. AMERICAN

TOBACCO COMPANY.

AMERICAN TOBACCO COMPANY v. UNITED

STATES OF AMERICA.

APPEALS FROM THE CIRCUIT COURT OF THE UNITED STATES

FOR THE SOUTHERN DISTRICT OF NEW YORK.

Nos. 118, 119. Argued January 3, 4, 5, 6, 1910; restored to docket for re-

argument April 11, 1910; reargued January 9, 10, 11, 12, 1911.—Decided

May 29, 1911.

Standard Oil Co. v. United States, ante, p. 1, followed and reaffirmed

as to the construction to be given to the Anti-trust Act of July 2,

1890, c. 647, 26 Stat. 209; and held that the combination in this case

is one in restraint of trade and an attempt to monopolize the busi-

ness of tobacco in interstate commerce within the prohibitions of

the act.

UNITED STATES v. AMERICAN TOBACCO CO. 107

221 U.S. Syllabus.

In order to meet such a situation as is presented by the record in this

case and to afford the relief for the evils to be overcome, the Anti-

trust Act of 1890 must be given a more comprehensive application

than affixed to it in any previous decision.

In Standard Oil Co. v. United States, ante, p. 1, the words “restraint of

trade” as used in § 1 of the Anti-trust Act were properly construed

by the resort to reason; the doctrine stated in that case was in accord

with all previous decisions of this court, despite the contrary view at

times erroneously attributed to the expressions in United States v.

Trans-M issouri Freight Association, 166 U. 8. 290, and United States

v. Joint Tiaffic Association, 171 U.S. 505.

The Anti-trust Act must have a reasonable construction as there can

scarcely be any agreement or contract among business men that

does not directly or indirectly affect and possibly restrain commerce.

United States v. Joint Traffic Association, 171 U. 8. 505, 568.

The words “restraint of trade” at common law, and in the law of this

country at the time of the adoption of the Anti-trust Act, only em-

braced acts, contracts, agreements or combinations which operated

to the prejudice of the publie interests by unduly restricting com-

petition or by unduly obstructing due course of trade, and Congress

intended that those words as used in that act should have a like

significance; and the ruling in Standard Oil Co. v. United States,

ante, p. 1, to this effect is reéxpressed and reaffirmed.

The public policy manifested by the Anti-trust Act is expressed in

such general language that it embraces every conceivable act which

can possibly come within the spirit of its prohibitions, and that

policy cannot be frustrated by resort to disguise or subterfuge of

any kind.

The record in this case discloses a combination on the part of the de-

fendants with the purpose of acquiring dominion and control of

interstate commerce in tobacco by methods and manners clearly

within the prohibition of the Anti-trust Act; and the subject-

matters of the combination and the combination itself are not ex-

cluded from the scope of the act as being matters of intrastate com-

merce and subject to state control.

In this case the combination in all its aspects both as to stock owner-

ship, and as to the corporations independently, including foreign

corporations to the extent that they became coéperators in the

combination, come within the prohibition of the first and second

sections of the Anti-trust Act.

In giving relief against an unlawful combination under the Anti-trust

Act the court should give complete and efficacious effect to the

2 Stet ALE RIMES SPDR SERINE RES ef 3

108 OCTOBER TERM, 1910.

Argument for the United States. 221 U.S.

prohibitions of the statute; accomplish this result with as little in-

jury as possible to the interest of the general public; and have a

proper regard for the vested property interests innocently acquired.

In this case the combination in and of itself, and also all of its con-

stituent elements, are decreed to be illegal, and the court below is

directed to hear the parties and ascertain and determine a plan or

method of dissolution and of recreating a condition in harmony with

law, to be carried out within a reasonable period (in this case not to

exceed eight months), and, if necessary, to effectuate this result

either by injunction or receivership.

Pending the achievement of the result decreed all parties to the com-

bination in this case should be restrained and enjoined from en-

larging the power of the continuation by any means or device

whatever.

Where a case is remanded, as this one is, to the lower court with directions

to grent the relief in a different manner from that decreed by it, the

proper course is not to modify and affirm, but to reverse and remand

with directions to enter a decree in conformity with the opinion and

to carry out the directions of this court with costs to defendants.

164 Fed. Rep. 700, reversed and remanded with directions.

TuE facts, which involve the construction of the Anti-

trust Act of July 2, 1890, and the question whether the

acts of the defendants amounted to a combination in re-

straint of interstate commerce in tobacco, are stated in the

opinion.

The Attorney General and Mr. James C. McReynolds

for the United States:

What constitutes or materially affects interstate or

foreign commerce is a practical question to be decided

upon a view of the facts presented in each case. Rearick

v. Pennsylvania, 203 U. S. 507, 512; Western Union Tel.

Co. v. Kansas, 216 U. S. 1; International Text Book

Co. v. Pigg, 217 U. S. 91; Dozier v. Alabama, 218 U. S.

124. In the constantly recurring course of affairs com-

merce among the States passes through three stages:

soliciting orders; manufacturing the goods; transporting

them to the purchaser. And each is an essential of the

entire movement. Soliciting orders undoubtedly is inter-

UNITED STATES ». AMERICAN TOBACCO CO. 109

221 U.S. Argument for the United States.

state commerce, Robbins v. Shelby County, 120 U. S. 489.

Transporting the manufactured article likewise is clearly

of the same. The manufacture is as essential as either of

the other elements; and some restrictions upon it, as all

know, affect the very foundations of interstate trade.

The commerce clause gives Congress power to indicate

its will in conformity to which interstate commerce shall

be carried on. This is supreme and admittedly extends to

whatever is itself interstate commerce, and al! instru-

mentalities and persons engaged therein. Legislation

which directly regulates any of these things comes clearly

within the constitutional grant. Delaware & Hudson

R. R. Co. v. United States, 213 U. S. 366. And, conse-

quently, whenever manufacture can be regarded as a

part of such commerce Congress may inhibit a monopoly

thereof, as in so doing it would be directly regulating

commerce.

The granted power may be made effective by all means

reasonably necessary therefor. Experience demonstrates

that the indicated will of Congress concerning interstate

trade and commerce may be directly hindered, obstructed

and nullified by some things which are no part thereof.

Whatever of these, therefore, as an efficient cause, will

probably occasion as a natural and reasonable conse-

quence material obstruction or hindrance to the effica-

cious operation of its lawful will, Congress may prohibit.

A monopoly of production, as the efficient cause, may oc-

casion material hindrance or obstruction to such opera-

tion of the indicated will of Congress, and in that event

may be prohibited because of this effect although manu-

facture be regarded as no part of commerce. Gibbons v.

Ogden, 9 Wheat. 1, 195, 208, 209; United States v. Coombes,

12 Pet. 72, 78; The Daniel Ball, 10 Wall. 557.

Where matters of economic opinion or theory are ele-

ments for consideration and conclusions depend thereon,

the courts must accept whatever declaration Congress has

110 OCTOBER TERM, 1910.

Argument for the United States. 221 U.S.

made in respect of them, and frame their judgments in

harmony therewith, unless such declaration is plainly

without reasonable foundation. National Cotton Oil Co.

v. Texas, 197 U.S. 115.

Contracts, combinations, conspiracies and monopolies

which directly and materially hindered or obstructed in-

terstate or foreign commerce were unlawful prior to the

act of July 2, 1890.

The principles of the common law are applicable to

interstate commerce transactions. Western Union Tele-

graph Company v. Call, 181 U.S. 92, 102. Without con-

gressional enactment, every contract, combination, con-

spiracy or monopoly, unlawful at common law, would be

so regarded by the Federal courts although relating solely

to interstate or foreign commerce; and certainly no af-

firmative aid would be given to the purposes of any of

them.

Congress has power “To Regulate Commerce with

Foreign Nations, and Among the Several States, and with

the Indian Tribes.”” Except as limited by other provi-

sions, this power is supreme and cannot be abridged by

State, individual or corporation.

Inaction by Congress indicates its will that interstate

and international commerce shall be free; and therefore

whatever substantially obstructs, interferes with or ham-

pers such commerce conflicts with the will of Congress and

the Federal Constitution. Letsy v. Hardin, 135 U.S. 100;

Re Rahrer, 140 U. 8. 545; Rhodes v. Iowa, 170 U.S. 412;

Adams Express Co. v. Kentucky, 206 U. 8. 129, 185; At-

lantic Coast Line v. Wharton, 207 U.S. 328, 334; Adams

Express Co. v. Kentucky, 214 U.S. 218.

The doctrine that inaction by Congress is equivalent

to a positive declaration that commerce shall be free and

untrammeled and that whatever substantially interferes

with or hampers the same is in conflict with the Con-

stitution of the United States rests upon the intention of

UNITED STATES v. AMERICAN TOBACCO CO. 111

221 U.S. Argument for the United States.

Congress reasonably implied from its silence in respect

to the subject of commerce. Bowman v. Chicago &c. R. R.

Co., 125 U. S. 465, 482.

Contracts, combinations, conspiracies and monopolies

may and often do prevent the free flow of commerce—sub-

stantially obstruct, interfere with and hamper the same.

Addyston Pipe Case, 175 U.S. 211; Loewe v. Lawlor, 208

U.S. 274.

If state legislation which substantially hinders or ob-

structs commerce is invalid, because in conflict with the

contrary intention of Congress reasonably implied from

silence, a fortiori is this true of any arrangements by cor-

porations which bring about like results.

In the absence of express legislation any contract, com-

bination, or other arrangement by corporations which

directly and materially hinders, restrains or obstructs the

free flow of interstate or foreign commerce would be un-

lawful. Re Debs, 158 U. 8. 564, 577, 599; Union Bridge

Co. v. United States, 204 U. 8S. 364; Galveston R. R. v.

Texas, 210 U.S. 217; Caldwell v. North Carolina, 187 U.S.

622. How far the courts, in the absence of a statute, could

prevent and restrain such obstructions, or whether par-

ties thereto might be prosecuted criminally, it is not nec-

essary to discuss, since the Anti-trust Act now clearly

applies to them.

The anti-trust provisions of the Wilson Tariff Act

(1894) apply to any combination or agreement intended

to restrain free competition when one of the parties is en-

gaged in importing.

These provisions have not been construed by this court.

They denounce every combination, one party to which is

engaged in importing, when intended to restrain lawful

commerce or free competition therein. The language dif-

fers somewhat from the Sherman Act, not improbably

because of prior opinions in the lower Federal courts. Re

Greene, 52 Fed. Rep. 104; United States v. Trans-Missouri

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112 OCTOBER TERM, 1910.

Argument for the United States. 221 U. S.

Freight Assn., 53 Fed. Rep. 440; 58 Fed. Rep. 58; United

States v. E. C. Knight Co., 60 Fed. Rep. 934.

The Sherman Act prescribes the rule of free competi-

tion in its broad and general sense and denounces con-

tracts, combinations and conspiracies in whatever form

which in effect or necessary tendency directly and ma-

terially obstruct interstate or foreign commerce. The

natural effect of competition is to increase commerce; to

extinguish or prevent the free play of competition is to

hinder it.

The rights of an individual acting alone are not in-

volved in the present controversy. (Concurring opinion

of Justice Brewer in Northern Securities Case.)

The record reveals gross violations of the anti-trust

statutes within any construction consistent with re-

peated decisions of this court; if limited to unreasonable

restraints the present case would be clearly within them.

And if duress, and wicked and unfair methods are essential,

they all appear.

Interstate commerce is a term of very large significance.

It comprehends intercourse for the purposes of trade in

any and all forms, including transportation, purchase, sale

and exchange of commodities between citizens of different

States. Regulation and commerce are both practical con-

ceptions, and their limits must be fixed by practical lines.

Addyston Pipe Co. v. United States, 175 U.S. 211; Caldwell

v. North Carolina, 187 U. 8. 622, 632; Montague & Co. v.

Lowry, 193 U.S. 38; Swift & Co. v. United States, 196 U.S.

375; Rearick v. Pennsylvania, 203 U.S. 507, 512; Galveston

R. R. v. Texas, 210 U. S. 217, 225.

The anti-trust laws must be reasonably construed with

a view to practical enforcement, and not so as to defeat the

purposes leading to their enactment. ‘‘ Nothing is better

settled than that statutes should receive a sensible con-

struction, such as will effectuate the legislative intention,

and, if possible, so as to avoid an unjust or an absurd

UNITED STATES ». AMERICAN TOBACCO Co. 113

221 U.S. Argument for the United States.

conclusion.” Lau Ow Bew v. United States, 144 U. 8. 47, a:

59; United States v. Joint Traffic Assn., 171 U. 8. 505,

567; Hopkins v. United States, 171 U. 8. 578, 600; Ander-

son v. United States, 171 U. S. 604, 616; Swift & Company

v. United States, 196 U. 8S. 375, 396; Cincinnati Packet

Company v. Bay, 200 U. 8. 179, 184.

The general principles adopted in reference to state

legislation affecting interstate commerce are applicable

for determining whether combinations of corporations or

individuals materially affect the free flow of such com-

merce. The validity of such state legislation turns upon

whether its direct effect or necessary tendency is the ma-

terial or substantial restraint, hindrance or obstruction of

commerce. If so, it is uneonstitutional irrespective of

intent. But if the effect is only immaterial and incidental

this does not invalidate. Asbell y. Kansas, 209 U.S. 251,

256; Galveston &e. R. R. v. Texas, 210 U. S. 217, 227;

Minnesota v. Barber, 136 U. 8. 313, 319; Richmond &e,

R. R. Co. v. Patterson, 169 U. §. 511, 314; Chicago &e.

R. R. v. Solan, 169 U. 8. 133; Missouri &c. R. R. v. Haber.

169 U.S. 613, 626; Bowman v. Chicago &e. R. R. Co., 125

U.S. 465, 482; Smith v. Alabama, 124 U.S. 465, 473.

The Sherman Act applies when the direct result or nec-

essary tendency of the prohibited thing—contract, com-

bination, ete.—is material obstruction, hindrance or re-

straint of interstate or foreign commerce. This thing need

not be any part of commerce, nor be done by parties en-

gaged therein. And whether such obstruction, hindrance,

restraint or tendency exists must be determined by the

court upon the facts of each case. That which did not re-

strain commerce fifty years ago may do so to-day. Loewe

v. Lawlor, 208 U. S. 274, 293; Union Bridge Company v.

United States, 204 U. 8. 364, 400; Pennsylvania v. Wheeling

Bridge Co., 13 How. 518, and 18 How. 421.

The settled rule, and one constantly invoked by those

engaged in interstate commerce, is that any state statute

VOL. ccxx1—8

SP ee eee PE RETELE AS <

114 OCTOBER TERM, 1910.

Argument for the United States. 221 U.S.

which in effect or necessary tendency directly and ma-

terially obstructs or hinders the free flow of interstate com-

merce conflicts with the Federal Constitution. Certainly

one purpose of the Sherman Act was to prevent any such

interference with commerce through contracts, combina-

tions, conspiracies or monopolies (Loewe v. Lawlor), and

if state statutes are cut down because of congressional in-

tent inferred from silence, there can be no question of the

power of Congress by a positive enactment to destroy

obnoxious arrangements amongst individuals or corpora-

tions. The interpretation of the Sherman Act expounded

in the unanimous opinion in Loewe v. Lawlor supports this

suggestion.

The natural effect of competition in its broad and legiti-

mate sense is to increase trade. To suppress such com-

petition restrains, hinders and obstructs trade within the

meaning of the Anti-trust Act. United States v. Trans-

Missouri Freight Assn., 166 U. S. 290; United States v.

Joint Traffic Assn., 171 U.S. 505; Addyston Pipe Co. v.

United States, 175 U. 8. 211; Northern Securities Co. v.

United States, 193 U.S. 197; United States v. Standard Oil

Co., 173 Fed. Rep. 177. This rule is especially rigid in re-

spect of public service corporations. Gibbs v. Consolidated

Gas Co., 130 U. 8. 396; United States v. Trans-Missouri

Freight Assn., 166 U. S. 290; but it is applicable to all

commerce. ves

Persons of sound mind are presumed to intend the nec-

essary or ordinary consequences of their acts, Clarion

Bank v. Jones, 21 Wall. 325, 337; and, in general, the

intent consciously entertained or dominant in the minds of

parties to a combination is not material—certainly not

decisive of its legality. Where attempts to monopolize are

charged, or where essential to show a plan not necessarily

inferred from circumstances, or where the effect of estab-

lished acts may be doubtful, the actual purpose may be

material—perhaps essential. United States v. Trans-Mo.

UNITED STATES v. AMERICAN TOBACCO CO. 115

221 U.S. Argument for the United States.

Ft. Assn., 166 U. 8. 290, 341, 342; Addyston Pipe Co. v.

United States, 175 U. 8. 211, 234; Swift & Co. v. United

Slates, 196 U. S. 375, 396.

The fundamental design of the anti-trust legislation is

not punishment of immorality, but prevention of mischief

consequent upon unification of control and destruction of

competition. The public is chiefly concerned about practi-

cal results—not mental attitudes. The lawfulness of a

combination cannot be determined by the conscious pur-

pose of the parties; necessary consequences are presumed

to have been intended. United States v. Trans-Mo. Ft.

Assn., 166 U. 8. 290; United Slates v. Joint Traffic Assn.,

171 U.S. 562; Addyston Pipe Co. v. United States, 175

U. S. 211, 234.

The word “unreasonable” cannot be read into the first

section of the Sherman Act; but this does not render the

prohibitions applicable merely because commerce is in

some way affected, or to transactions always enforceable,

and never regarded as objectionable from any standpoint.

This court has never declared unlawful those ordinary

business arrangements always sanctioned at common law

and wholly outside the mischief intended to be prevented.

Any act, however, although entirely innocent when stand-

ing alone may be criminal if part of an unlawful plan.

United States vy. Joint Traffic Assn., 171 U.S. 505, 567,

568; Hopkins vy. United States, 171 U.S. 578, 600; Atkens

v. Wisconsin, 195 U. S. 194, 205; Swift & Company v.

United States, 196 U. 8. 375, 396; Cincinnati Packet Co. v.

Bay, 200 U. S. 179.

The Government does not maintain that restraint, ob-

struction or hindrance of commerce is denounced by the

act unless direct and material either in tendency or effect;

and, of course, do not insist that every contract or ar-

rangement which merely eliminates a competitor in inter-

state trade is for that sole reason unlawful. The statute

was intended to foster, not destroy, business operations

RSS Pate

116 OCTOBER TERM, 1910.

Argument for the United States. 221 U.S.

universally regarded as promotive of public welfare. The

suggestion that the statute denounces as criminal every

party to any sort of contract which eliminates any inde-

pendent dealer in interstate commerce however insignifi-

cant is untenable. But when, as in the present case, the

restraint is the direct consequence of or that to which the

challenged contract or combination necessarily tends, and

is also of a material or substantial character it is clearly

within the prohibition. The Government does not

avouch and will not attempt to support this extreme con-

struction which was adopted by the presiding judge be-

low.

Contracts, combinations or conspiracies which give

power materially to restrain commerce and indicate a

dangerous probability of its exercise and those which

necessarily tend to monopoly are unlawful without more.

United States v. E. C. Knight Co., 156 U. S. 1; United

States v. Trans-Missouri Ft. Assn., 166 U.S. 290; Northern

Securities Company v. United States, 193 U.S. 197; United

States v. Standard Oil Co., 173 Fed. Rep. 177. The essen-

tial purpose of the statute is to prevent injury—not merely

to reverse a course of conduct.

The words, ‘“‘contract, combination and conspiracy”

in the statute are used in their ordinary sense, and there

is no exception in favor of sales, conveyances or other ex-

ecuted arrangements. Pettibone v. United States, 148

U. 8. 197, 203; Noyes on Intercorporate Relations, §§ 324

et seq.

The decision in United States v. E. C. Knight Company

turned upon the conclusion that under the peculiar cir-

cumstances of that case what was alleged and proved did

not show a direct or necessary obstruction to interstate

commerce; and it may be relied upon only where the evi-

dence requires a like finding on that point. The facts of

the present case render such a conclusion impossible. The

things done had direct reference to interstate and foreign

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UNITED STATES v. AMERICAN TOBACCO CO. 117

221 U.S. Argument for the United States.

commerce; competition therein has been effectively de-

stroyed and monopoly secured. In support of the fore-

going doctrines, see United States v. E. C. Knight Com-

pany (1895), 156 U. 8. 1; Pearsall v. Great Northern R. R.

Co. (1896), 161 U.S. 646; United States v. Trans-Missourt

Freight Assn. (1897), 166 U. 8. 290; United States v. Joint

Traffic Assn. (1898), 171 U. S. 505; Hopkins v. United

States (1898), 171 U. S. 578; Anderson v. United States

(1898), 171 U. S. 604; Addyston Pipe & Steel Company v.

United States (1899), 175 U. 8S. 211; Montague & Company

v. Lowry (1903), 193 U.S. 38; Northern Securities Company

v. United States (1904), 193 U.S. 197; Harriman v. North-

ern Securities Company (1905), 197 U.S. 244; Swift & Com-

pany v. United States (1905), 196 U. S. 375; Cincinnati

etc., Packet Co. v. Bay (1906), 200 U. S. 179; Loewe v.

Lawlor (1908), 208 U. S. 274. See also National Cotton

Oil Co. v. Texas, 197 U. S. 115; Shawnee Compress Co. v.

Anderson, 209 U. S. 423; Continental Wall Paper Co. v.

Voight, 212 U. S. 227; Pennsylvania Sugar Refining Com-

pany v. American Sugar Refining Co., 166 Fed. Rep. 254;

Bigelow v. Calumet & Hecla Mining Company, 167 Fed.

Rep. 704, 721; National Fireproofing Company v. Mason

Builders Assn., 169 Fed. Rep. 259; United States v. Stand-

ard Oil Co., 173 Fed. Rep. 177.

Monopoly is the outcome of the practical cessation of

effective business competition. This word in the Anti-

Trust Act has no reference to a grant of special privileges

but is used in a broad sense. Trade and commerce in any

commodity are monopolized whenever as the result of the

concentration of competing businesses—not occurring as

an incident to the orderly growth and development of one

of them—one or a few corporations (or persons) acting in

concert practically acquire power to control prices and

smother competition.

The rights of an individual acting alone are not in-

volved and it is unnecessary to inquire how far his acts

118 OCTOBER TERM, 1910.

Argument for the United States. 221 U.S.

may be limited. Corporations do not have all the con-

stitutional rights of an individual and are themselves

combinations subject to the rules of law applicable to acts

done in concert.

The word ‘‘monopolize” has no reference to a govern-

mental grant. Congress was striking at an existing evil—

unification of control with consequent destruction of com-

petition through powerful organizations. The essential

idea of monopoly is ability to control prices or to deprive

the public of advantages flowing from free competition.

Whether the power has been actually exercised, or prices

or the total volume of trade increased or diminished is im-

material; and its existence must be determined by practi-

cal consideration of existing conditions, giving due weight

to the peculiarities of the commerce involved. It is cer-

tain that where parties have deliberately pursued a course,

the ordinary result or necessary tendency of which is

monopoly, they cannot be heard to deny an unlawful in-

tent; and a monopoly acquired through contract, combina-

tion or conspiracy which directly and essentially destroys

competition clearly is unlawful. United States v. Trans-

Mo. Ft. Assn., 166 U.S. 290; Addyston Pipe Co. v. United

States, 175 U. S. 211; Swift & Co. v. United States, 196

U.S. 375.

The courts have long referred to ‘‘monopoly”’ the out-

come of individual action as distinguished from govern-

mental grant, and have declared unlawful every arrange-

ment tending thereto. The word in the Sherman Act has

the same significance as in the well-known opinions, from

Mitchell v. Reynolds, 1 P. Williams, 181, to Continental

Wall Paper Co. v. Votght, 212 U.S. 227; United States v.

Addyston Pipe Co., 85 Fed. Rep. 271; United States v.

E.C. Knight Co., 156 U.S. 1, 16; Pearsall v. Great Northern

Railway Co., 161 U. 8. 644; United States v. Freight As-

sociation, 166 U. 8S. 290, 323; National Cotton Oil Co. v.

Texas, 197 U.S. 115; Shawnee Compress Co. v. Anderson,

UNITED STATES v. AMERICAN TOBACCO CO. 119

221 U.S. Argument for the United States.

209 U. S. 423, 433; People v. North River Sugar Refining

Co., 54 Hun, 354; American Biscuit Co. v. Klotz, 44 Fed.

Rep. 721, 724; Richardson v. Buhl, 77 Michigan, 632; Po-

cahontas Coke Co. v. Powhatan C. & C. Co., 60 W. Va. 508;

Harding v. American Glucose Co., 182 Illinois, 619, 620;

Noyes on Intercorporate Rels., §§ 329 et seg., 389; An-

drews, Amer. Law (2d Ed.), Vol. I, 773.

The legislation against combinations and monopolies

cannot be defeated by causing a corporation to acquire the

shares or property and business of competing corpora-

tions; nor by any other scheme or device.

Corporate combinations which bring about the results

denounced by the statute are unlawful. They are in

fact more injurious to the public than the old forms of

simple agreement among separate concerns or the well-

known trust forms. Eddy on Combinations, Vol. I, §§ 617,

620 et seq.; Noyes on Intercorporate Relations, § 307; Dis-

tillery Co. v. People, 156 Illinois, 448.

If the corporate form of combination is beyond the

reach of Congress, it lacks supreme power to regulate com-

merce. Certainly a corporation, a mere creature of state

law, cannot be endowed with power to obstruct commerce

not possessed by the State itself. Deb’s Case, 158 U. 8.

564; Addyston Pipe Co. v. United States, 175 U.S. 211;

Northern Securities Case, 193 U.S. 197.

The right to buy, sell and transfer property is not supe-

rior to the right to make other contracts; and all are sub-

ordinate to the power of Congress to regulate commerce.

Addyston Pipe Co. v. United States, 175 U. 8. 211; North-

ern Securities Co. v. United States, 193 U.S. 197; Swift &

Co. v. United States, 196 U.S. 396; Shawnee Compress Co.

v. Anderson, 209 U. 8. 423; Armour Packing Co. v. United

States, 209 U. 8. 56; United States v. Del. & Hud. R. R.

(Commodities Clause Case), 212 U.S. 366; Natl. Harrow Co.

v. Hench, 83 Fed. Rep. 36; S. C., 84 Fed. Rep. 226.

A corporation which, not as an incident to orderly

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120 OCTOBER TERM, 1910.

Argument for the United States. 221 U.S.

growth, secures control of competitors by purchasing their

shares or property and business and thereby acquires

power to suppress competition is no less inimical to public

interests than a technical ‘‘ Trust,” and indeed is often a

mere modification thereof. The direct, necessary result

of such an arrangement is to hinder and obstruct com-

merce. The Pearsall Case, 161 U. 8. 644; Northern Secu-

rities Case, 193 U. S. 344; Shawnee Compress Case, 209

U. S. 423; Distillery Co. v. People, 156 Illinois, 448, 491.

In re Greene, 52 Fed. Rep. 104, and the E. C. Knight Case,

if to the contrary, must be considered disapproved.

There is no foundation for the claim that the Sherman

Act was directed only against contracts and combinations

of an executory nature, and is without application where

transfers of property have been actually executed. It

was intended to, and does, prohibit obstructions to com-

merce whether resulting from executory or executed ar-

rangements. Northern Securities Case, 193 U. S. 197;

Shawnee Compress Co. v. Anderson, 209 U. S. 423; People

v. Chicago Gas Trust, 130 Illinois, 268; Distillers & Cattle

Feeding Co. v. The People, 156 Illinois, 448; Pocahontas

Coke Co. v. Powhatan Coal & Coke Co., 60 W. Va. 508;

Eddy on Combinations, § 622; Noyes on Intercorporate

Relations, §§ 354, 386.

A foreign corporation doing business within the United

States has no right to violate its policy or laws. An

agreement or combination which in purpose or effect con-

flicts therewith, although actually made in a foreign coun-

try where not unlawful, gives no immunity to parties act-

ing here in pursuance of it.

If Congress is powerless to prevent wrongs in its own

jurisdiction, when the actors are foreigners, or when done

in pursuance of agreements made abroad, its sovereignty

is a myth.

A crime is committed within the jurisdiction where the

act of the parties actually takes effect, although the in-

UNITED STATES v. AMERICAN TOBACCO CO. 121

221 U.S. Argument for the United States.

strumentalities may have been set in motion in another

jurisdiction. Re Palliser, 136 U. S. 256, 265; Horner v.

United States, 143 U.S. 207; Benson v. Henkel, 198 U.S. 1;

Burton v. United States, 202 U. 8S. 344, 387; United States

v. Thayer, 209 U.S. 39, 44.

The courts should enforce the anti-trust legislation by

all appropriate processes known to their usages; and de-

crees should be so moulded as to suppress effectually the

mischief consequent upon unlawful arrangements.

Congress has forbidden monopolies and combinations.

When one exists everything done in furtherance of its

purpose is unlawful; especially every act constituting a

part of interstate or foreign commerce. Therefore the

privilege of engaging therein may be denied. The power

to regulate extends to prohibition of anything directly

conflicting with the will of Congress lawfully expressed.

Northern Securities Co. v. United States, 193 U. S. 197;

Champion v. Ames (Lottery Case), 188 U.S. 321; United

States v. D. & H. Co., 213 U.S. 366; Loewe v. Lawlor, 208

U. S. 274.

The statute requires the court “to prevent and restrain

violations’’—not merely to determine the legality of past

transactions. The public interest is the thing to be sub-

served, and it demands the destruction of existing mischief

and prevention of impending wrongs—the removal of

obstruction existing or threatened.

Where an unlawful corporate combination exists and

identity of constituents has been destroyed, or where one

corporation has aequired a forbidden monopoly, there are

two possible effective remedies. The first is to enjoin the

corporation from doing interstate or foreign business until

(if ever) it can affirmatively show that its affairs have been

readjusted so as to render future operations lawful. The

second is to appoint a receiver to take possession of the

concern and by proper action restore opportunities for

free competition. Deb’s Case, 158 U. 8. 564; Chicago,

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122 OCTOBER TERM, 1910.

Argument for the United States. 221 U.S.

Rock Island &c. Ry. v. Union Pacific Ry., 47 Fed. Rep. 15,

26; Stockton, Alty.-Genl., v. Central R. R. Co., 50 N. J. Eq.

52, 489; Taylor v. Simon, 4 Mylne & Craig, 141; Pomeroy

on Eq. Juris., 2d Ed., §§ 111, 170.

The Government established violations of the Sherman

Act by proving first, the existence of contracts, combina-

tions, conspiracies and monopolies; and, second, that the

direct result or necessary tendency of these is materially

to obstruct, hinder and burden the free flow of interstate

and foreign commerce.

The Knight Case is not controlling; the combinations

established here directly and materially affect ‘not only

the production and manufacture, but every department of

trade and commerce in tobacco; and the results have been

destruction of competition in such commerce and the crea-

tion of monopolies by defendants.

The purposes of anti-trust legislation cannot be frus-

trated by operating through a corporation, nor by means

of executed sales and transfers of property. The Northern

Securities Co. v. United States, 193 U.S. 197; Harriman v.

Northern Securities Co., 197 U. S. 244, seem decisive on

this point.

Moreover, if important, the evidence clearly establishes

that the defendants’ actions have been characterized by

duress, and unfair and oppressive methods; and that fol-

lowing a fixed plan they have sought to suppress competi-

tion and secure monopolies.

The decree below was right in so far as it enjoined acts

in furtherance of the combination; enjoined the control of

certain defendant corporations by others through stock

ownership; and also in so far as it prohibited the American

Tobacco Company and other defendants adjudged to be

in and of themselves combinations in restraint of trade

from engaging in interstate or foreign commerce.

The decree below did no more than was necessary to

destroy the unlawful combinations and prevent violations

UNITED STATES v. AMERICAN TOBACCO CO. 123

221 U.S. Argument for the United States.

of the act—in fact it did not go far enough. Prohibition of

acts in furtherance of the combination and also of control

by one corporation of another is abundantly supported by

The Northern Securities Co. vy. United States; Swift &

Co. v. United States, and United States v. D. & H.R. R.

That part of the decree which adjudges the American

Tobacco Company and others unlawful combinations and

enjoins them from engaging in commerce is novel—ap-

parently without a direct precedent; but it harmonizes

with the duty to enforce the act. Swift & Co. v. United

Slates, supra.

The petition should not have been dismissed as to the

individual defendants.

In order effectually to destroy combinations the intelli-

gent manipulators of corporate agencies must be reached.

Observance and every act done in pursuance of the

English contracts within the United States are unlawful;

and the petition was wrongfully dismissed as to the Im-

perial Tobacco Company, British-Ameriean Tobacco Com-

pany and domestic corporations controlled by the latter.

The effect of the agreements entered into in Iengland

between the American combination and the Imperial

Tobaeco Company was to suppress competition between

those two great concerns both within and without the

United States. The British-American Tobacco Company

was brought into existence as the instrumentality for

making the agreements effective. The result of the whole

arrangement was to destroy competition, and inevitably

tends to monopoly. Observance of these arrangements

should have been prohibited. The British-American To-

bacco Company should have been enjoined from doing

business within the United States; and the same pro-

hibition should have been applied to the Imperial To-

bacco Company during the continuation of the unlawful

contracts.

The petition should not have been dismissed as to the

RY PRE rare MCSE Sy IT

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124 OCTOBER TERM, 1910.

Argument for the American Tobacco Co. 221 U.S

United Cigar Stores Company. This concern is one of

the instrumentalities in the hands of the American To-

bacco Company for carrying out its unlawful purposes, and

the connection between them should have been severed.

The final decree should have adjudged that defendants

were attempting to monopolize, and had monopolized,

a part of interstate and foreign commerce.

Monopoly is a practical conception, and its existence

must be determined in view of business conditions. The

evidence abundantly establishes that the defendants have

acquired power to control prices and smother competition.

The final decree should have enjoined corporations

holding shares of others from collecting dividends thereon.

This relief was granted in the Northern Securities Case,

and is an appropriate way to destroy the relationship

where one corporation improperly controls another by

stock ownership.

Mr. John G. Johnson, Mr. DeLancey Nicoll and Mr.

Junius Parker, with whom Mr. William J. Wallace and

Mr. W. W. Fuller were on the brief, Mr. William M. Ivins

also filing a brief, for the American Tobacco Company

and all the other defendants except the Imperial Tobacco

Company (of Great Britain and Ireland), Limited, United

Cigar Stores Company and R. P. Richardson, Jr., & Co.,

Ine.:

The transactions principally complained of by the Gov-

ernment in this bill involve the validity of one or the other

of the two following transactions, to-wit: (a) Consolidation

of manufacturing interests through the formation of the

corporation and the transfer to it of the properties in such

manufacturing industries for exchange of stock of the

vendee corporation or for cash; (b) purchase by a cor-

poration engaged in manufacturing of the property of

a competitor, or through the purchase by such corporation

of whole or part of the stock of the corporation of such

UNITED STATES v. AMERICAN TOBACCO CO. 125

221 U.S. Argument for the American Tobacco Co.

competing corporation, generally for cash. These trans-

actions are not within the operation of the Sherman Law,

because they primarily affect manufacturing and not com-

merce. Veazie v. Moor, 14 How. 568; County of Mobile v.

Kimball, 102 U.S. 691; Coe v. Errol, 116 U.S. 517; Turpin

v. Burgess, 117 U.S. 504; Kidd v. Pearson, 128 U.S. 1; In

re Greene, 52 Fed. Pep. 104; United States v. Knight, 156

U.S. 1.

The Knight Case was not a sporadie decision of this

court, but was the logical outcome of the cases that pre-

ceded it that have just been cited, and it has not been

overruled or modified by any subsequent decision, but

has been expressly recognized wherever mentioned. Addy-

ston Pipe & Steel Co. v. United States, 175 U.S. 211;

Montague v. Lowry, 193 U.S. 38; Swift & Co. v. United

States, 196 U.S. 375; Shawnee Compress Co. v. Anderson,

209 U. 8. 423; Loewe v. Lawlor, 208 U. 8. 274; Northern

Securities Co. v. United States, 193 U.S. 197, 406; Conti-

nental Wall Paper Co. v. Voight, 212 U.S. 227; Ware v.

Mobile County, 209 U.S. 405; Bigelow v. Calumet Co., 167

Fed. Rep. 721. Confusion has arisen and it has been as-

sumed that the Anight Case has been overruled or modified

because of the failure to distinguish between the persons

complained of and the transaction which is the basis of

the complaint. The defendants in this case and the de-

fendants in the Anight Case were engaged in interstate

commerce, but the question is not whether the defendant

is engaged or not in interstate commerce, but whether the

transaction complained of is an act of, or direct in its ef-

fect on, interstate commerce; one engaging in interstate

commerce does not thereby subject himself and his whole

business to the control of Congress. Howard v. Railroad

Company, 207 U.S. 463, 502.

Any attempt to distinguish this case from the Knight

Case based upon unskillful pleading on the part of the

Government in the Knight Case, is defeated by a consider-

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126 OCTOBER TERM, 1910.

Argument for the American Tobacco Co. 221 U.S.

ation of the record of that case on file in this court. The

scope of the Knight Case as here contended has beeu as-

sumed by the law department of the Government from

1895 to 1907. Annual Reports of the Attorney General

1895, p. 13; for 1896, p. xxvii; for 1899, pp. 21 et seq.; for

1906, p. 7; Senate Document No. 687, 2d Session, 60th

Congress, p. 27. Upon the decision in the Knight Case,

the defendants—and these defendants are only one among

many in this respect—have proceeded; this adjudication

of this court has become a rule of property, and to over-

rule it would make wrecks of these enterprises; a case of

such close analogy to ex post facto laws is presented that the

maxim of stare decisis becomes almost as if embodied in

the Constitution itself. It is as important that the law

should be settled permanently as that it should be settled

correctly. Gilbert v. Philadelphia, 3 Wall. 713, 724; Vale

v. Arizona, 207 U.S. 201, 205.

Without reference to whether the trade is interstate, the

transactions shown by this record do not constitute con-

tracts, combinations or conspiracies in restraint of trade,

and are not against the public policy which this court has

(Northern Securities Case, supra) declared to be the purpose

and effect of the Sherman Law. The intent of Congress

was not to unsettle legitimate business enterprises, but

rather to place a statutory prohibition, with prescribed

penalties and remedies, upon those contracts which were

in direct restraint of trade, unreasonable, and against

public policy. (Mr. Justice Brewer in Northern Securities

Case). The transfer of property by purchase, sale, or con-

solidation, whether by the formation of partnerships, or-

ganization of corporations, or consolidation of preéxisting

corporations, is not violative of the common law. See

Fairbanks v. Leary, 40 Wisconsin, 637; People v. North

River Sugar Refining Co., 121 N. Y. 583; Trenton Potteries

Co. v. Oliphant, 58 N. J. Eq. 507; Cameron v. Water .Co.

(N. Y.), 62 Hun, 269; Vinegar Co. v. Foehrenback, 148 N. Y.

UNITED STATES v. AMERICAN TOBACCO CO. 127

221 U.S. Argument for the American Tobacco Co.

58; Dittman v. Distilling Co., 64 N. J. Eq. 544; Common-

wealth v. Hunt, 4 Mete. 111; Oakdale Co. v. Garst, 18 R. I.

484; McCauley v. Tierney, 19 R. I. 225; Bohn Co. v. North-

western Assn., 54 Minnesota, 223; Monongahela Co. v. Jutte,

210 Pa. St. 288, 300. Such transfer and consolidation is

not opposed to the public policy, but is expressly authorized

and facilitated by the merger statutes of many States,

and is forbidden by the statutes of none. Many of the

States which authorize the merger of corporations have

anti-trust statutes of the same general import as the Sher-

man Anti-Trust Law, and to give to the Federal Anti-

Trust statute the meaning contended for by the Govern-

ment and to import that meaning into the various state

anti-trust statutes would work the incongruity of assum-

ing that the States had facilitated the formation of cor-

porations, which by their very formation would become

outlaws of commerce.

The decision of this court in Northern Securities Case is

not in conflict with the contention here made; this court in

the Northern Securities Case did not overrule or modify the

declarations theretofore made, and in subsequent deci-

sions has not recognized the Northern Securities Case as in

conflict with the contention here made. T'rans-Missouri

Freight Assn. Case, 166 U. S. 290; United States v. Joint

Traffic Assn., 171 ™' S. 505; Smiley v. Kansas, 196 U.S.

447; National Cotton Oil Co. v. Texas, 197 U. S. 115;

Cincinnati Packing Co. v. Bay, 200 U. 8S. 179; Chesapeake

& Ohio Co. v. United States, 115 Fed. Rep. 610, 620; Davis

v. Booth, 131 Fed. Rep. 31, 37; Robinson v. Brick Co., 127

Fed. Rep. 804; Connor-McConnell Co. v. McConnell, 140

Fed. Rep. 412; aff., idem, 987; Fisheries Co. v. Lennen, 116

Fed. Rep. 217; Harrison v. Glucose Co., 116 Fed. Rep. 304;

National Co. v. Haberman, 120 Fed. Rep. 415; Bigelow v.

Calumet Co., 167 Fed. Rep. 721. The combinations and

contracts in existence at the passage of the Sherman Law,

and in the contemplation of Congress in its enactment,

LEE REGIE OO BI

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watbnetts.

128 OCTOBER TERM, 1910.

Argument for the American Tobacco Co. 221 U.S.

were entirely distinct from those combinations of capital

and ability which had long existed in the form of joint-

stock associations or corporations or partnerships, and it

is the duty of the court to apply the Sherman Law as an

evolutionary statute, and not assume a revolutionary

purpose in the mind of Congress in its enactment.

These defendants have not violated the Sherman Law

by monopolizing trade or commerce, although they in the

aggregate enjoy large, but varying, proportions of the

business in the products of tobacco. Monopolizing under

the Sherman Law is an activity and not a state of being,

and size, and the power that is inherent in size, whether

size be considered in relation to investment or to the pro-

portion of business at the time enjoyed, is not monopoliz-

ing or an element of monopolizing. Monopoly at common

law was a license or privilege for the sole buying and sell-

ing, making, working, or using of anything whatsoever,

whereby the subject in general is restrained from that

liberty in manufacturing or trading which he had before.

4 Blackstone, 159. Monopolizing under the statute carries

with it the idea of exclusion, and whatever the magnitude

of a concern may be, it is not guilty of monopolizing or at-

tempting to monopolize unless it is doing something by

which there is either attained or attempted this result, to-

wit, that ‘‘the subject in general is restrained from that

liberty of trading which he had before.’’ See dissenting

opinion of Mr. Justice Holmes in Northern Securities Case,

193 U.S. 409; In re Greene, 52 Fed. Rep. 115; Chemical Co.

v. Providence Co., 64 Fed. Rep. 946, 949; Whitwell v.

Continental Tob. Co., 125 Fed. Rep. 462; United States v.

Reading Co., 183 Fed. Rep. 427. This is true not only

with respect to this statute, but it is so recognized at com-

mon law and among economic writers. Mogul Co. v. Mc-

Gregor, L. R. 23 Q. B. 598, 618; Oakdale v. Garst, 18 R. I.

484; Prof. Ely’s ‘‘Monopolies and Trusts,” 34; Clark’s

Control of Trusts, 6.

UNITED STATES v. AMERICAN TOBACCO CO. 129

221 U.S. Argument for the American Tobacco Co.

These defendants have not, either singly or in combina-

tion, excluded or attempted to exclude anyone from trade

and commerce. (a) They have not cornered nor attempted

to corner the supply of raw material; it is a matter of se-

rious doubt whether such corner or attempting to corner

would fall within the inhibition of the Sherman Law, or

within the constitutional power of Congress, as being an

act of, or direct in its effect on, interstate commerce, even

if the record disclosed it. But decisions as to those ques-

tions are not necessary to an adjudication of this case.

(b) Defendants have not enjoyed rebates or other prefer-

ence in transportation; (c) they have not enjoyed ex-

clusive advantage in the use of machinery and facilities

for manufacturing; (d) they have not excluded nor at-

tempted to exclude competitors from the avenues of dis-

tribution—marketing their products. It is impossible to

conceive of exclusion or attempt to exclude competitors

from trade that does not involve one or the other of the

foregoing methods or avenues. The defendants have met

active competition, and in meeting it have adopted the

ordinary methods of competition. To give a construction

to the Sherman Law, intended as it is to foster competition,

that would forbid the usual methods of competition, would

make the statute self-destructive. Competition, it is often

said, is the life of trade, but the object of all competition

is to drive out other competitors. To say that a man is

to trade freely, but that he is to stop short of any act which

is calculated to harm other tradesmen and which is de-

signed to attract business to his own shop would be a

strange and impossible counsel of perfection. The rights

of competitors are different from the rights of strangers

to the trade, and conduct is justified on the part of the

person or corporation who seeks to build his own business

that would be unlawful if adopted by him whose only

motive was the injury of another. Loewe v. Lawlor, supra;

Bonsack Machine Co. v. Smith, 70 Fed. Rep. 383, 388;

VOL. CCXXI—9

Bt ea

130 OCTOBER TERM, 1910.

Argument for the American Tobacco Co. 221 U.S.

Mogul Co. v. McGregor, L. R. 23 Q. B. 598, 618; Berry v.

Donovan, 188 Massachusetts, 353; Barnes v. Typographical

Union, 232 Illinois, 424; Barr v. Essex Trades Council, 53

N. J. Eq. 101, 124; Doremus v. Hennessey, 176 Illinois, 608;

Whitwell v. Continental Tob. Co., supra. The rights of

competitors as recognized at common law include the

right to undersell competitors; Commonwealth v. Hunt

(Mass.), 4 Mete. 111, 134; Lough v. Outerbridge, 143 N. Y.

271, 283; to have secret partners; 1 Lindley on Part.

(2d Am. Ed.) * 16; Winship v. Bank, 5 Peters, 529, 562;

to adopt a policy of business that can only result in de-

struction of weak competitors, even though a part of it is

the sale of goods below cost; Lough v. Outerbridge, 143

N. Y. 271, 283; Martel v. White, 185 Massachusetts, 255;

Lewis v. Lumber Co., 121 Louisiana, 658; Karges Co. v.

Amalgamated Union, 165 Indiana, 421; to make provision

for exclusive handling; Palmer v. Stebbins (Mass.), 3 Pick.

188, 192; In re Greene, supra; Whitwell v. Continental

Tob. Co., supra; Houch v. Wright, 77 Mississippi, 476.

Purchasers of competing businesses do not constitute

attempts to monopolize, for such purchases do not ex-

clude others from the trade, but leave the field open; this is

true, although the inducement to purchase is to get rid of a

competitor. The law of self-defense and protection ap-

plies to one’s business as well as to his person. United

Shoe Co. v. Kimball, 193 Massachusetts, 351; Wood v.

Whitehead Bros. Co., 165 N. Y. 545, 551; United States Co.

v. Provident Co., 64 Fed. Rep. 946, 950; Butt v. Ebel, 29

N. Y. App. Div. 256, 259; Lanyon v. Garden City Sand Co.,

223 Illinois, 616; National Co. v. Cream City Co., 86 Wis-

consin, 352. Covenants taken from a vendor not to en-

gage in a business in competition with that sold are not

only not criminal, but are altogether valid and enforceable.

Cincinnati Co. v. Bay, 200 U. S. 179; Fowle v. Park, 131

U. S. 88; Navigation Co. v. Winsor, 20 Wall. 64; Electric

Co. v. Hawks, 171 Massachusetts, 101.

UNITED STATES v. AMERICAN TOBACCO CO. 131

221 U.S. Argument for the American Tobacco Co.

The Sherman Law properly construed and applied is a

beneficent and evolutionary statute, whose purpose and

effect is to preserve to every one liberty and opportunity

to engage in interstate commerce—it preserves this liberty

and opportunity as against the unreasonable covenants

and contracts of the party himself, as well as against the

tortious conduct of others, whether those others seek in

combination to exclude a stranger to the combination, or

seek singly to exclude him. In other words, this statute

applies to interstate trade the doctrines of the common law

applicable to trade and commerce, without respect to

whether interstate or not, and the words used in it are

well known words at common law, which must, in the in-

terpretation of this law, be given their common law mean-

ing. The chief purpose of the statute was to make certain

the application in the Federal jurisdiction of the principles

of the common law, and to provide definite and certain

remedies for the enforcement thereof.

In addition to the considerations heretofore mentioned,

this construction, and this construction alone, gives mean-

ing and effect to every word of the statute: (a) The first

section of the statute condemns every contract, ete., in

restraint of trade—the construction contended for by

the Government in this case would eliminate the word

“every” from the statute and makes the test dependent

not upon the nature of the act, but its magnitude or result;

these defendants contend that it is the nature of the act

that is the test and that every transaction of the prohibited

nature is forbidden, whatever its magnitude, result, or

intent; (b) the second section forbids the monopolizing

or attempt to monopolize of any part of interstate trade

or commerce—the Government’s contention as to the

meaning of this second section eliminates these words

from the statute or substitutes for them the words ‘in

large part,” or ‘‘a dominating part”’; the construction con-

tended for by these defendants gives full force to the mean-

ONE ERE PANS a eer ogee apenas ecE Le ane

132 OCTOBER TERM, 1910.

Argument for the American Tobacco Co. 221 U.S.

ing ‘‘any part’’—it is a violation of the statute to exclude

or attempt to exclude by tortious means a trader from

even the smallest part of interstate trade or commerce.

An additional argument in favor of the construction of

the statute here contended for is seen when the remedy is

considered. The court below, construing the statute as

contended for by the Government, said that it condemned

that incidental elimination of competition which comes

from ordinary consolidation, sale, and purchase; in order

to give vitality to such construction there are involved

two grave constitutional questions: First: Is there a con-

stitutional power in Congress to forbid the ordinary trans-

actions that have characterized all commercial peoples,

and that are unquestionably valid at common law? Sec-

ond: Has Congress the constitutional power to prevent a

state corporation from engaging in interstate commerce

in wholesome products? These defendants believe that

these two questions should be each answered in the nega-

tive; Congress has no right under its authority to regulate

commerce, great and paramount as that power is, to

violate the fundamental rights secured by other provisions

of the Constitution. Monongahela Co. v. United States,

148 U. 8. 312, 336; Adair v. United States, 208 U.S. 161,

180; Allgcyer Case, 165 U.S. 578, 589, 591. Congress has

not a right to forbid corporations or natural persons from

engaging in interstate commerce in wholesome products—

the right of intercourse between State and State derives

its source from those laws whose authority is acknowledged

by civilized man throughout the world—the Constitution

found it an existing right and gave to Congress only the

power to regulate it. Gibbons v. Ogden, 9 Wheat. 1, 211;

Paul v. Virginia, 8 Wall. 168. Corporations have this

right as certainly and as thoroughly as natural persons.

Santa Clara County v. R. R., 118 U. 8. 394, 396; Justice

Field at Circuit in Railroad Tax Cases, 13 Fed. Rep. 722,

746; Hale v. Henkel, 201 U. S. 43, 76, 85. The Lottery

UNITED STATES »v. AMERICAN TOBACCO CO. 133 &

221 U.S. Argument for the Imperial Tobacco Co.

Case, 188 U. 8. 321, is not in conflict with this contention,

because it was based on the inherent vicious nature of the

commodity involved, to-wit, lottery tickets.

It is well settled that if a statute be susceptible of two

interpretations, by one of which it would be unconstitu-

tional or of doubtful constitutional validity, and by the

other valid, the latter construction should be adopted.

Commodities Case, 213 U. S. 366. The court below, how-

ever, having construed the Sherman Anti-Trust Law as

forbidding the elimination of competition that results in-

cidentally from sale, purchase and consolidation, resolved

these two grave constitutional questions against the de-

fendants, and, under the language of a statute which au-

thorizes a court to restrain and enjoin only ‘‘ violations of

the Act,” restrained and enjoined the assumed violators

of the act from all interstate activity. It is practicable

for a court to ‘‘prevent and restrain” the making or the

continued operation of an executory contract or con-

spiracy, or combination in the nature of a contract or con-

spiracy ; and it is practicable for a court to prevent and re-

strain a practice which involves monopolizing trade—

tortiously excluding or attempting to exclude strangers

to the scheme contemplated; these are the things con-

demned by the Sherman Law; it is not practicable nor

constitutional to prevent or restrain the purchaser of pri-

vate property from the use of his property, or penalize

such use by preventing his engaging in interstate com-

merce in wholesome articles. The impracticability of con-

stitutional remedy demonstrates the unsoundness of the

construction of the act contended for by the Government.

Mr. William B. Hornblower, with whom Mr. John Pick-

rell, Mr. William W. Miller, and Mr. Morgan M. Mann,

were on the brief for appellee, the Imperial Tobacco Com-

pany:

By far the greater part of the testimony taken in this

penta

Bet) Uae

134 OCTOBER TERM, 1910.

Argument for the Imperial Tobacco Co. 221 U.S.

cause has to do with the alleged combinations entered

into by the American Tobacco Company and its allied

companies in this country, with which the Imperial Com-

pany and the British-American Company have no con-

cern. Itis claimed, however, by the Government that cer-

tain contracts entered into by the Imperial Company in

1902 with the American Company were in violation of the

Sherman Act, and that the transactions of the Imperial

Company since that date have been in violation of the act.

These contracts were entered into in England in the sum-

mer of 1902 for the purpose of putting an end to the

ruinous competition which was being carried on in England

by the Ogdens Limited owned by the American Company.

The court below was right in dismissing the bill as to

the Imperial Company and as to the British-American

Tobacco Company, on the ground that those companies

were British companies, that the contracts to which they

were parties were made in Great Britain and were valid

under the laws of Great Britain, and that the Sherman

Anti-Trust Act has no extraterritorial effect. American

Banana Co. v. United Fruit Co., 213 U.S. 347.

The agreements of September 27, 1902, between the

American Tobacco Company and the Imperial Tobacco

Company were not in violation of the Sherman Anti-Trust

Act. So far as those agreements operated to restrain

trade in Great Britain or between Great Britain and coun-

tries other than the United States, they are not within

the prohibition of the Sherman Act. So far as they operate

to restrain trade between England and this country, or

between the various States of this country, such restraint

is merely incidental to the sale of certain plants and good

will, and is not within the prohibition of the Sherman Act.

The principle that there are certain contracts in partial

restraint of trade which would not be invalid at common

law, and which do not come within the prohibition of the

Sherman Act, has been recognized by this court in the

UNITED STATES v. AMERICAN TOBACCO CO. 135

221 U.S. Argument for the Imperial Tobacco Co.

very cases which are cited by the Government as holding

that all contracts in restraint of trade whether reasonable

or unreasonable, are in violation of the Sherman Act.

See United States v. Trans-Missouri Freight Association.

166 U. S. 290, 329. The same principle is recognized in

United States v. Joint Traffic Association, 171 U. S. 505,

566; Northern Securities Co. v. United States, 193 U.S. 197,

per Mr. Justice Brewer at p. 361; Cincinnati Packet Co.

v. Bay, 200 U.S. 179, per Mr. Justice Holmes at p. 184.

Mr, Justice Peckham in the Joint Traffic Case held that

the statute is to have a “‘reasonable construction.”” When

he states that contracts in restraint of trade are invalid

under the statute, whether reasonable or unreasonable, he

refers not to contracts between mercantile or manufactur-

ing concerns, but to contracts or combinations between

competing railroad corporations, all of which contracts or

combinations are illegal under the statute even though the

rates and fares established are reasonable. See 171 U.S.

568, 570.

The distinction between contracts affecting public serv-

ice corporations, and contracts between private individuals

or corporations, is well stated in Gibbs v. Baltimore Gas

Co., 130 U. S. 396, where it was held that a corporation

cannot disable itself by contract from the performance of

public duties which it has undertaken, and thereby make

public accommodation or convenience subservient to its

private interests, but where the public welfare is not in-

volved, and where the restraint of one party is not greater

than protection to the other party requires, the contract

in restraint of trade may be sustained.

The validity of covenants between vendor and vendee,

for the purpose of protecting the covenantee in the en-

joyment of the legitimate fruits of the contract, have

been upheld under the Sherman Act in the Addyston Pipe

Case, 85 Fed. Rep. 291, modified and affirmed without

approval of the opinion below in 175 U. 8. 211; Brett v.

MG 2S aS MRE Rs

Set Tas

‘ |

136 OCTOBER TERM, 1910.

Argument for the Imperial Tobacco Co. 221 U.S.

Ebel, 29 N. Y. App. Div. 256; Lanyon v. Garden City Sand

Co., 223 Illinois, 616; Whitwell v. Continental Tobacco Co.,

125 Fed. Rep. 454; Bancroft & Rich v. U. S. Embossing

Co., 72 N. H. 402; Harbison-Walker Refractories Co. v.

Stanton, 227 Pa. St. 55.

In view of the statement of Mr. Justice Brewer in his

concurring opinion in the Northern Securities Case, 193

U. S. 361, that ‘Congress did not intend to reach and de-

stroy those minor contracts in partial restraint of trade,”

and in view of the limitations placed upon the effect of

the statute in Mr. Justice Peckham’s opinion in the T'rans-

Missouri Case, we may fairly assume the statement made

by Mr. Justice Brewer to represent the views of this

court, especially as to contracts of a mercantile character

not affecting railroads or other direct instruments of

commerce. The subject of contracts not in restraint of

trade at common law prior to the act of 1890 is discussed

by this court in Oregon Steam Navigation Co. v. Winsor,

20 Wall. 64; Gibbs v. Consolidated Gas Co., 130 U.S. 396,

409; Fowles v. Park, 131 U.S. 88-96.

The lower Federal courts have decided numerous cases

both before and since the Sherman Act, upholding con-

tracts, the avowed object of which was to buy off competi-

tion of a business rival. Carter v. Alling, 43 Fed. Rep. 208;

U. S. Chemical Co. v. Provident Chemical Co., 64 Fed.

Rep. 946; Harrison v. Glucose Sugar Refining Co., 116 Fed.

Rep. 304; National Enameling & Stamping Co. v. Haber-

man, 120 Fed. Rep. 415; Praine v. Ferrell, 166 Fed. Rep.

702; Walker v. Lawrence, 177 Fed. Rep. 363.

Contracts between parties which have for their object

the removal of a rival competitor in a business are not

to be regarded as contracts in restraint of trade. Con-

tracts although in partial restraint of trade, if valid at

common law, and if not a cover for a combination or con-

spiracy to raise prices, or to prevent general competition,

are not invalid under the Sherman Act. This proposition

UNITED STATES v. AMERICAN TOBACCO CO. 137

221 U.S. Argument for the Imperial Tobacco Co.

is clearly held by the authorities above cited from the

Federal reports.

As to what contracts would not be illegal at common

law as in restraint of trade, see Rousillon v. Rousillon, 14

Ch. Div. 351; Leather Cloth Co. v. Lorsent, L. R. 9 Eq. 345;

approved by this court in Gibbs v. Consolidated Gas Co.,

130 U.S. 396.

In Nordenfelt v. Maxim, Nordenfelt Guns and Ammuni-

tion Co., L. R. 1894, App. Cases, 535, the House of Lords

reviewed at great length and in elaborate opinions the

whole subject of covenants in restraint of trade, and held

unanimously that a covenant, though unrestricted as to

space, was not invalid where it was shown to be no wider

than was necessary for the protection of the company,

nor injurious to the public interests.

The case of Diamond Match Co. v. Roeber, 106 N. Y. 473,

establishes the proposition that in connection with the

sale of a factory and the good will thereof, a covenant,

practically unrestricted in time or space, not to engage in

the manufacture or sale of competing articles, is not a

covenant in restraint of trade. The same principle is laid

down in the eases of Hodge v. Sloane, 107 N. Y. 244; Leslie

v. Lorillard, 110 N. Y. 519; Tode v. Gross, 127 N. Y. 480;

Matthews v. Associated Press, 136 N. Y. 333; Oakes v.

Cataragus Water Co., 143 N. Y. 430; Wood v. Whitehead

Brothers Co., 165 N. Y. 545; New York Bank Note Co. v.

Hamilton Bank Note Co., 180 N. Y. 280; Anchor Electric

Co. v. Hawkes, 171 Massachusetts, 101; United Shoe

Machinery Co. v. Kimball, 193 Massachusetts, 351; Rake-

straw v. Lanier, 104 Georgia, 188; Bullock v. Johnson, 110

Georgia, 486.

The most recent decisions in the state courts in which

covenants to refrain from competition have been held

reasonable and lawful, are, Freudenthal v. Espey (Cal.), 102

Pac. Rep. 280; Louisville Board of Underwriters v. Johnson

(Ky.), 1198. W. Rep. 152; Wolf v. Duluth Board of Trade

‘

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TRAP IPRS ey ara as

RENT, ALI PIII OO LY

138 OCTOBER TERM, 1910.

Argument for the Imperial Tobacco Co. 221 U.S.

(Minn.), 121 N. W. Rep. 395; Seigal v. Marcus, (No.

Dak.), 119 N. W. Rep. 358; Buckhout v. Witler (Mich.),

122 N. W. Rep. 184; Blume v. Home Ins. Agency (Ark.),

121 S. W. Rep. 293; Wooten v. Harris (No. Car.), 68S. E.

Rep. 989; Home Telephone Co. v. North Manchester Tele-

phone Co. (Ind.), 92 N. E. Rep. 558; Artistic Porcelain Co.

v. Boch (N. J.), 74 Atl. Rep. 680; Harbison-Walker Re-

fractories Co. v. Stanton (Pa.), 75 Atl. Rep. 988.

As to the British-American agreement there is absolutely

nothing in that agreement which prevents, or tends to

prevent, any other company or companies from manufac-

turing and exporting tobacco to other countries than Great

Britain and the United States. There is no agreement to

restrict prices or to interfere in any way with free com-

petition. The evidence shows that there has been no

actual diminution in the business of exporting either leaf

tobacco or manufactured tobacco from the United States

to foreign countries by reason of the British-American

agreement.

None of the decisions heretofore made by this court un-

der the Sherman Act are applicable to the agreements here

involved. The Joint Traffic, Trans-Missouri and Northern

Securities cases dealt with agreements between railroad

companies or holders of railroad stocks, the effect and in-

tent of which were held to restrict competition between

common carriers and public service corporations. They

have no application to agreements between manufacturers,

but are based upon the peculiar obligations of common

carriers and public service corporations. The Addyston

Pipe Case, 175 U.S. 211, involved an agreement between

rival and competing manufacturers that there should be

no competition between them in certain States or Terri-

tories, the direct, immediate and intended effect of which

agreement was the enhancement of the price.

Montague v. Lowry, 193 U.S. 38, was an agreement, the

effect of which was to raise prices in the California market.

UNITED STATES v. AMERICAN TOBACCO CO. 139

221 U.S. Argument for the Imperial Tobacco Co.

The case of Swift & Co. v. United States involved a com-

bination of independent meat dealers who agreed not to

bid against each other in the livestock markets, to fix

selling prices and to restrict shipments of meat when nec-

essary.

The case of Chattanooga Foundry v. Atlanta, 203 U. S.

390, was a sequel of the Addyston Pipe Case.

The case of Shawnee Compress Co. v. Anderson, 209 U. S.

423, was a case where the lessor company had agreed with

the lessee company not only to go out of the field of com-

petition, and not to enter that field again, but had further

agreed to render every assistance to prevent others from

entering it.

The case of Continental Wall Paper Co. v. Voight Sons,

212 U.S. 227, was a case of an agreement between a num-

ber of manufacturers who organized a selling company

through which their entire output was sold to such persons

only as would enter into a purchasing agreement by which

their sales were restricted. The agreement provided for

selling by jobbers at particular specified prices. The com-

pany was a selling company organized to control all the

selling business of the manufacturing wall paper corpora-

tions, partnerships and persons who owned the stock of

the Continental Wall Paper Company, and made separate

contracts with that corporation giving it entire control of

the selling business of the manufacturers.

None of the cases in this court apply to the agreements

between the American and Imperial Companies, which

are involved in this suit. They had no necessary effect to

directly and substantially restrict free competition in any

of the products of tobacco, and did not unlawfully restrain

interstate commerce. Whitwell v. Continental Tobacco

Co., 125 Fed. Rep. 461.

The oral testimony shows that the agreements did not

and could not, under the existing circumstances, operate

to restrain trade or create a monopoly, and therefore could

“4

‘

140 OCTOBER TERM, 1910.

Argument for the Imperial Tobacco Co. 221 U.S.

not, and did not operate as a violation of the Sherman

Anti-trust Act. It appears from the testimony that at

the time of the agreements, there was practically no ex-

portation or importation of manufactured products be-

tween Great Britain and the United States, owing to the

protective duties in this country and the differentials im-

posed upon imported goods in Great Britain. It was not

possible to sell manufactured tobacco imported into this

country in competition with the domestic articles of man-

ufacture, nor was it possible to export to England and sell

in competition with domestic manufacture.

So far as the bill of complaint herein avers, that there

was any restraint of competition in the purchase of leaf

tobacco, the evidence overwhelmingly disproves any such

claim. There was no agreement, arrangement or under-

standing between the American Tobacco Company and

the Imperial or its representatives, to refrain from active

competition in the purchase of leaf tobacco. The testi-

mony shows without any contradiction that there has

been at all times active competition between the Imperial

Company’s agents and the agents of the American Com-

pany, and of the independent concerns, and of the ‘ Rigi”

countries in the purchase of leaf tobacco, and the testi-

mony shows that the price of leaf tobacco has increased

since the agreements between the Imperial and American

Company were made, and is still increasing. The amount

of the consumption of leaf tobacco and the prices paid for

it have both increased since 1902 up to the present time.

No decree can be made in this suit as against the Im-

perial Company which will be just and equitable.

There are three possible evils aimed at by the Sherman

Anti-trust Act. First, the raising of the price of the com-

modity to consumers; second; the lowering of the price of

raw material to producers; third, the crushing out of

competitors. There is no evidence in the case at bar that

the agreements between the Imperial Company and the

UNITED STATES v. AMERICAN TOBACCO CO. 141

221 U.5. Argument for the United Cigar Stores Co.

American Company which are attacked in this suit, have

resulted in any one of these three evils.

There is no evidence that the price of tobacco products

in any of their forms, has been raised to the consumer. So

far as appears, the price has remained the same.

There is no evidence that the price to the producers of

leaf tobacco has been reduced. On the contrary, the evi-

dence is uncontradicted that the price has steadily in-

creased.

There is no evidence that any competitor has been in

any way interfered with by reason of the agreements be-

tween the Imperial Company and the American Company.

Every manufacturer in the United States has been at

liberty to manufacture and export his goods without

hindrance on the part of either the Imperial or the Amer-

ican Company, or the British-American or any of the other

defendants in this case. The agreements in this suit do

not undertake to fix prices or to pool profits, or to eliminate

competition in any way, or to interfere with the ordinary

laws of supply and demand.

Mr. Sol M. Stroock for the United Cigar Stores Com-

pany:

The company has not violated any of the provisions

of § 1 of the Sherman Anti-trust Act. It has not made

any contract, nor engaged in any combination or con-

spiracy restraining the interstate commerce of the other

defendants or any of them; or restraining its own inter-

state commerce; or restraining the interstate commerce

of any competitor of the other defendants, or any of

them; or restraining the interstate commerce of any

competitor with it.

The United Cigar Stores Company has not violated

any of the provisions of §2 of the Sherman Anti-trust

Act. It has not secured nor attempted to secure a mo-

nopoly for any of the other defendants nor combined

142 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

with any of the other defendants to exclude others from

the field of competition with them.

It has not secured nor attempted to secure a monopoly

of the retail trade for itself, nor attempted, cither alone or

in combination or conspiracy with the other defendants,

to exclude others from the field of competition with it.

The United Cigar Stores Company has not, as an inci-

dent of obtaining a monopoly, or as part of any combina-

tion in restraint of trade, prevented vendors from engag-

ing in the business of handling and dealing in tobacco

products.

Mr. Charles R. Carruth, Mr. Charles J. McDermott, Mr.

C. B. Watson, Mr. James T. Morehead and Mr. A. J.

Burton for R. P. Richardson, Jr., & Company, Ine., ap-

pellee, submitted.

Mr. W. Bourke Cockran, by leave of the court, sub-

mitted a brief as amicus curie.

Mr. Thomas Thacher and Mr. J. Parker Kirlin, by leave

of the court, submitted a brief as amici curie on certain

questions common to this case and other pending causes.

Mr. Cuter Justice Wuite delivered the opinion of the

court.

This suit was commenced on July 19, 1907, by the

United States, to prevent the continuance of alleged vio-

lations of the first and second sections of the Anti-trust

Act of July 2, 1890. The defendants were twenty-nine

individuals, named in the margin,' sixty-five American

1James B. Duke, Caleb C. Dula, Percival 8. Hill, George Arents,

Paul Brown, Robert B. Dula, George A. Helme, Robert D. Lewis,

Thomas J. Maloney, Oliver H. Payne, Thomas I. Ryan, Robert K.

Smith, George W. Watts, George G. Allen, John B. Cobb, William R.

Harris, William H. McAlister, Anthony N. Brady, Benjamin N. Duke,

UNITED STATES v. AMERICAN TOBACCO CO. 143

221 U.S. Opinion of the Court.

corporations, most of them ereated in the State of New

Jersey, and two English corporations. For convenience

of statement we classify the corporate defendants, ex-

clusive of the two foreign ones, which we shall hereafter

separately refer to, as follows: The American Tobacco

Company, a New Jersey corporation, because of its domi-

nant relation to the subject-matter of the controversy as

the primary defendant; five other New J ersey corporations

(viz., American Snuff Company, American Cigar Com-

pany, American Stogie Company, MacAndrews & Forbes

Company, and Conley Foil Company), because of their

relation to the controversy as the accessory, and the fifty-

nine other American corporations as the subsidiary de-

fendants.

The ground of complaint against the American Tobacco

Company rested not alone upon the nature and character

of that corporation and te power which it exerted di-

rectly over the five accessory corporations and some of the

subsidiary corporations by stock ownership in such cor-

porations, but also upon the control which it exercised

over the subsidiary companies by virtue of stock held in

said companies by the accessory companies by stock own-

ership in which the American Tobacco Company exerted

its power of control. The accessory companies were im-

pleaded either because of their nature and character or

because of the power exerted over them through stock

ownership by the American Tobacco Company and also

because of the power which they in turn exerted by stock

ownership over the subsidiary corporations, and finally

the subsidiary corporations were impleaded either because

of their nature or because of the control to which they were

subjected in and by virtue of the stock ownership above

stated. We append in the margin a statement showing

H. M. Hanna, Herbert D. Kingsbury, Pierre Lorillard, Rufus L. Pat-

terson, Frank H. Ray, Grant B. Schley, Charles N. Strotz, Peter A. B.

Widener, Welford C. Reed (now deceased), and Williamson W. Fuller.

PAPEL EER ETD DRPILL eae

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PIER STI HNO eT

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144 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

the stock control exercised by the principal defendant, the

American Tobacco Company, over the five accessory cor-

porations and also the authority which it directly exercised

over certain of th: subsidiary corporations, and a list show-

ing the control exercised over the subsidiary corporations

as a result of the stock ownership in the accessory cor-

porations, they being in turn controlled as we have said

by the principal defendant, the American Tobacco Com-

pany.

1 Extent of control of American Tobacco Company over the acces-

sory corporations:

American Snuff Company—of 120,000 shares of preferred stock owns

12,517 shares directly and 11,274 shares by reason of stock con-

trol of P. Lorillard Co., in all 23,764 shares; of 110,017 shares of

common stock owns 41,214 directly and 34,594 by reason of stock

control of P. Lorillard Co., im all 75,808 shares.

American Cigar Company—of 100,000 shares of preferred stock owns

89,700 shares directly and 5,000 shares through control of Ameri-

can Snuff Co., in all 94,700 shares; of 100,000 shares of common

stock owns directly 77,451 shares.

American Stogie Company—of 108,790 shares of common stock controls

73,0724 shares through stock interest in American Snuff Com-

pany. The American Stogie Company owns all of the stock—

12,500—of the Union American Cigar Company—cigars and

stogies.

MacAndrews & Forbes Company—of 37,583 shares of preferred stock

(no voting power) owns 7,500 shares; of 30,000 shares of common

stock owns 21,129 shares directly and 983 shares through stock

control of the R. J. Reynolds Co., in all 22,112 shares.

The Conley Foil Company—of 8,250 shares of stock, directly owns

4,950 shares.

The American Tobacco Company—by stock ownership is the owner

outright of the following defendant companies:

S. Anargyros [The 8. Anargyros Company owns all the capital

stock (10 shares) of the London Cigarette Co.]; F. F. Adams To-

bacco Co.; Blackwell’s Durham Tobacco Co.; Crescent Cigar and

Tobacco Co.; Day and Night Tobacco Co.; Luhrman & Wilbern

Tobacco Co.; Nall & Williams Tobacco Co.; Nashville Tobacco

Works; R. A. Patterson Tobacco Co.; Monopol Tobacco Works;

Spalding & Merrick.

INDIE PGES Hm yy . WL

a een

UNITED STATES v. AMERICAN TOBACCO CO. 145

221 U.S. Opinion of the Court.

The two foreign corporations were impleaded either be-

cause of their nature and character and the operation and

effect of contracts or agreements with the American To-

The American Tobacco Co. also has the stock interest indicated in

the following defendant corporations:

British-American Tobacco Co.—owns 1,200,000 shares of 1,500,000

shares of preferred stock and 2,280,012 shares of 3,720,021 shares

of common stock.

The Imperial Tobacco Co., &e.—owns 721,457 pounds sterling of

18,000,000 pounds sterling of stock.

The John Bollman Co.—of 2,000 shares of stock owns 1,020 shares.

F. R. Penn Tobacco Co.—of 1,503 shares of stock owns 1,002 shares

(through Blackwell’s Durham Tobacco Co.).

R. P. Richardson, Jr., & Co., Ine.—owns 600 out of 1,000 shares of

stock and $120,000 of $200,000 issue of bonds.

R. J. Reynolds Tobacco Co.—owns 50,000 out of 75,250 shares of stock.

Pinkerton Tobacco Co.—owns 775 out of 1,000 shares of stock.

Reynolds Tobacco Co. (of Bristol, Tenn.) —owns 1,449 shares out of

2,500 shares.

J. W. Carroll Tobacco Co.—owns 2,000 out of 3,000 shares.

P. Lorillard Co.—owns 15,813 out of 20,000 shares of preferred and all

the common stock (30,000 shares).

Kentucky Tobacco Product Co.—owns 14 of 1,900 shares preferred

and owns directly 5,264, and, through the American Cigar Co.,

355 out of 8,100 shares of common stock. [The Kentucky To-

bacco Product Co. owns all the capital stock (100 shares) of the

Kentucky Tobacco Extract Co.]

Porto Rican-Amcrican Tobacco Co.—owns directly 6,578, and,

through the American Cigar Co., 6,576 of 19,984 shares of stock.

[The Porto Rican-American Tobacco Co. owns 190 of the 380

shares of preferred and 300 of the 450 shares of common stock of

Ind. Co. of Porto Rico; also owns 2,150 of the 5,000 shares of

capital stock of the Porto Rico Leaf Tobacco Co.]

The American Tobacco Company is also interested, as indicated, in

the following defendants, supply or machinery companies:

Golden Belt Manufacturing Co. (cotton bags)—owns 6,521 of 7,000

shares.

Mengel Box Co. (wooden boxes) —British-American Tobacco Co. owns

. 3,637 of 5,000 shares of stock.

[The Mengel Company owns all of the capital stock of the Columbia

VOL. CCXxI—10

5 RRS BBE Sa ess es

0 ae

146 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

bacco Company, or the power which it exerted over their

affairs by stock ownership.

As we shall have occasion hereafter i in referring to mat-

Box Cumane and » the Tyler Box Conon, respectively 1,500

and 250 shares.]

Amsterdam Supply Co.—(agency to purchase supplies)—owns ma-

jority of stock and controls large part of remainder through sub-

sidiary companies.

Thomas Cusack Co.—(bill posting)—owns 1,000 out of 1,500 shares.

Manhattan Briar Pipe Co.—owns all of stock, 3,500 shares.

International Cigar Machinery Co.—of 100,000 shares owns 33,637

shares directly and 29,902 shares through Am. Cigar Co.—in all

63,539 shares.

The American Tobacco Company is also interested in the following

companies, not named as defendants:

American Machine & Foundry Co.-—owns 510 shares directly and re-

mainder (490) through Am. Cigar Co.

New Jersey Machine Co.—owns 510 shares directly and remainder

(490) through Am. Cigar Co.

Standard Tobacco Stemmer Co.—of 17,300 shares owns 16,895 shares.

Garson Vending Machine Co.—of 500 shares owns 250 shares.

The American Snuff Company in addition to stock, etc., interests in

the American Tobacco Co., American Cigar Company, and the Am-

sterdam Supply Company, has stock interests in the following de-

fendants:

H. Bolander—owns all of stock, 1,350 shares;

De Voe Snuff Co.—owns all of stock, 500 shares. [The De Voe

Snuff Co. owns all the capital stock, 400 shares of Skinner &

Co., snuff.]

Standard Snuff Co.—owns all of stock, 2,816 shares.

The American Cigar Co. in addition to stock interests in the Amster-

dam Supply Co., American Stogie Co., Porto Rican-American Tobacco

Co., Kentucky Tobacco Product Co. and International Cigar Machin-

ery Co., has the stock interest indicated in the following defendants:

R. D. Burnett Cigar Co.—owns 77 out of 150 shares;

M. Blaskower Co.—owns 1,875 out of 2,500 shares pref. and 1,875

out of 2,500 shares of common.

UNITED STATES v. AMERICAN TOBACCO Co. 147

221 U.S. Opinion of the Court.

ters beyond dispute to set forth the main facts relied upon

by the United States as giving rise to the cause of action

alleged against all of the defendants it suffices at this

Cuban Land & Leaf Tobacco Co.—owns all of stock, 1,000 shares.

[The Cuban Land, &e., Co. owns 1,320 of the 1,890 shares of

stock of the Vuelta Abajo 8. S. Co.]

Cliff Weil Cigar Co.—owns 255 out of 500 shares.

Dusel, Goodloe & Co.—owns 510 out of 750 shares.

Federal Cigar Real Estate Co.—owns all stock, 6,000 shares.

J. J. Goodrum Tobacco Co.—owns 477 out of 600 shares.

Havana-American Co.—owns all stock, 2,500 shares.

Havana Tobacco Co.—owns 700 shares out of 47,038 preferred,

166,800 out of 297,912 common stock, and $3,500,000 of $7,500,000

bonds.

Jordan Gibson & Baum Co., Inc.—owns all preferred and common

stock, 250 shares each.

Louisiana Tobacco Co., Limited—owns 375 out of 500 shares.

The J. B. Moos Company—owns all of stock, 2,000 shares.

J. & B. Moos—owns all of common stock, 1,000 shares.

Porto Rican Leaf Tobacco Co.—owns 2,500 out of 5,000 shares.

The Smokers’ Paradise Corporation—owns all of common stock (250

shares) and 349 of 500 shares preferred.

Havana Tobacco Co. has a stock interest in the following corporations:

H. de Cabanis y Carbajal—all of stock, 15,000 shares.

Hy. Clay and Bock & Co., Lim.—owns 9,749 out of 16,950 shares pre-

ferred and 14,687 out of 15,990 shares common.

[The Hy. Clay, &¢., Co. is owner of 16,667 shares of the ordinary

capital stock of the Havana Cigar & Tobacco Factories, Limited; and

also owns 64 shares of the 1,890 shares of the capital stock of the

Vuelta Abajo S. 8. Co.]

Cuban Tobacco Co.—owns all of stock, 50 shares.

Havana Commercial Co.—owns 55,562 out of 60,000 shares preferred

and 124,718 out of 125,000 shares common.

[The Havana Commercial Co. owns all of the capital stock—100 shares

—of the M. Valle y Co.—cigars.]

Havana Cigar & Tobacco Factories, Lim.—owns 6,774 out of 25,000

shares ordinary stock.

J. 8. Murias y Co.—owns all of stock—7,500 shares.

Blackwell's Durham Tobacco Co.—in addition to a stock interest in the

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Baio eka SR a A Se eA Aaa RE

: 148 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

moment to say the* «..e bill averred the origin and nature

of the American Tobacco Company and the origin and

nature of all the other defendant corporations, whether

accessory or subsidiary, and the connection of the indi-

vidual defendants with such corporations. In effect the

bill charged that the individual defendants and the de-

fendant corporations were engaged in a conspiracy in re-

straint of interstate and foreign trade in tobacco and

the products of tobacco and constituted a combination

in restraint of such trade in violation of the first section

of the act, and also were attempting to monopolize and

were actually a monopolization of such trade in violation

of the second section. In support of these charges general

averments were made in the bill as to the wrongful pur-

pose and intent with which acts were committed which it

was alleged brought about the alleged wrongful result.

The prayer of the bill was as follows:

‘Wherefore petitioner prays:

Amsterdam Supply Co., has the stock interest, indicated, in the

following defendant corporations:

F. P. Penn Tobacco Co.—owns 1,002 out of 1,503 shares.

Scotten-Dillon Co.—owns $10,000 out of $500,000 of stock.

Wells-Whitehead Tobacco Co.—owns all of stock, 1,500 shares.

Conley Foil Company—owns all of the capital stock (3,000 shares) of

the Johnson Tin Foil and Metal Co.

P. Lorillard Company—has a stock interest in the American Snuff

Company and the Amsterdam Supply Co.

R. J. Reynolds Tobacco Co.—in addition to a stock interest in the

Amsterdam Supply Company and the MacAndrews & Forbes

Company, owns two-thirds of the 5,000 shares of stock of the

Liipfert Scales Co.

The British-American Tobacco Co.—in addition to a small interest in

the Amsterdam Supply Company, has the following stock interest

in certain defendants:

David Dunlop—plug—owns 3,000 of 4,500 shares.

W. S. Mathews & Sons—smoking—owns 3,637 out of 5,000

shares of stock.

T. C. Williams Company—plug—owns all of stock, 4,000 shares.

UNITED STATES v. AMERICAN TOBACCO CO. 149

221 U.S. Opinion of the Court.

“1, That the contracts, combinations, and conspiracies

in restraint of trade and commerce among the States and

with foreign nations, together with the attempts to monop-

olize and the monopolies of the same hereinbefore described

be declared illegal and in violation of the act of Congress

passed July 2, 1890, and subsequent acts, and that they

be prevented and restrained by proper orders of the court.

‘2. That the agreements, contracts, combinations, and

conspiracies entered into by the defendants on or about

September 27, 1902, and thereafter, and evidenced among

other things by the two written agreements of that date,

Exhibits 1 and 2 hereto, be declared illegal, and that in-

junctions issue restraining and prohibiting defendants from

doing anything in pursuance of or in furtherance of the

same within the jurisdiction of the United States.

‘*3. That the Imperial Tobacco Company, its officers,

agents, and servants be enjoined from engaging in inter-

state or foreign trade and commerce within the jurisdiction

of the United States until it shall cease to observe or act

in pursuance of said agreements, contracts, combinations,

and conspiracies entered into by it and other defendants

on or about September 27, 1902, and thereafter, and evi-

denced among other things by the contracts of that date,

Exhibits 1 and 2 hereto.

‘“‘4, That the British-American Tobacco Company be

adjudged an unlawful instrumentality created solely for

carrying into effect the objects and purposes of said con-

tract, combination, and conspiracy entered into on or

about September 27, 1902, and thereafter, and that it be

enjoined from engaging in interstate or foreign trade and

commerce within the jurisdiction of the United States.

“5. That the court adjudge the American Tobacco

Company, the American Snuff Company, the American

Cigar Company, the American Stogie Company, the Mac-

Andrews & Forbes Company, and the Conley Foil Com-

pany is each a combination in restraint of interstate and

CTR iis

150 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

foreign trade and commerce; and that each has attempted

and is attempting to monopolize, is in combination and

conspiracy with other persons and corporations to monop-

olize, and has monopolized part of the trade and commerce

among the several States and with foreign nations; and

order and decree that each one of them be restrained from

engaging in interstate or foreign commerce, or, if the court

should be of opinion that the public interests will be better

subserved thereby, that receivers be appointed to take

possession of all the property, assets, business, and affairs

of said defendants and wind up the same, and otherwise

take such course in regard thereto as will bring about con-

ditions in trade and commerce among the States and with

foreign nations in harmony with law.

‘““6. That the holding of stock by one of the defendant

corporations in another under the circumstances shown

be declared illegal, and that each of them be enjoined from

continuing to hold or own such shares in another and from

exercising any right in connection therewith.

“‘7, That defendants, each and all, be enjoined from con-

tinuing ‘to carry out the purposes of the above-described

contracts, combinations, conspiracies, and attempts to

monopolize by the means herein described, or by any other,

and be required to desist and withdraw from all connection

with the same.

‘8. That each of the defendants be enjoined from pur-

chasing leaf tobacco or from selling and distributing its

manufactured output as a part of interstate and foreign

trade and commerce in conjunction or combination with

any other defendant, and from taking part or being in-

terested in any agreement of combination intended to

destroy competition among them in reference to such pur-

chases or sales.

“9. That petitioner have such other, further, and gen-

eral relief as may be proper.”

As to the answers, it suffices to say that all the individual

UNITED STATES v. AMERICAN TOBACCO CO. 151

221 U.S. Opinion of the Court.

and corporate defendants other than the foreign corpo-

rations denied the charges of wrongdoing and illegal com-

bination and the corporate defendants in particular in

addition averred their right under state charters by virtue

of which they existed to own and possess the property

which they held and further averred that they were en-

gaged in manufacturing and that any combination amongst

them related only to that subject, and therefore was not

within the Anti-trust Act. The two foreign corporations

asserted the validity of their corporate organization and

of the assailed agreements, and denied any participation

in the alleged wrongful combination.

After the taking of much testimony before a special

examiner, the case was heard before a court consisting of

four judges, constitute under the expediting act of Feb-

ruary 11, 1903. In deciding the case in favor of the Gov-

ernment each of the four judges delivered an opinion

(164 Fed. Rep. 700). A final deeree was entered on De-

cember 15, 1908. The petition was dismissed us to the

English corporations, three of the subsidiary corporations,

the United Cigar Stores Company and all the individual

defendants. It was decreed that the defendants other

than those against whom the petition was dismissed, had

theretofore entered into and were parties to combinations

in restraint of trade, ete., in violation of the Anti-trust

Act and said defendants and each of them, their officers,

agents, etc., were restrained and enjoined “from directly

or indirectly doing any act or thing whatsoever in further-

ance of the objects and purposes of said combinations and

from continuing as parties thereto.”” It specifically found

that each of the defendants, ‘‘The American Tobacco

Company, American Snuff Company, American Cigar

Company, American Stogie Company, and MacAndrews

& Forbes Company constitutes and is itself a combination

in violation of the said Act of Congress.” The corpo-

rations thus named, their officers, etc., were next restrained

‘

ARIA ECM SE Ie

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aR eR arp SRNR ee

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Birk. a

152 - OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

and enjoined ‘‘from further directly or indirectly engaging

in interstate or foreign trade and commerce in leaf tobacco

or the products manufactured therefrom or articles neces-

sary or useful in connection therewith. But if any of said

last-named defendants can hereafter affirmatively show

the restoration of reasonably competitive conditions, such

defendant may apply to this court for a modification, sus-

pension or dissolution of the injunction herein granted

against it.’ The decree then enumerated the various

corporations which it was found held or claimed to own

some or all of the capital stock of other corporations and

particuiarly specified such other corporations, and then

made the following restraining provisions:

‘‘Wherefore each and all of defendants, The American

Tobacco Company, the American Snuff Company, the

American Cigar Company, P. Lorillard Company, R. J.

Reynolds Tobacco Company, Blackwell’s Durham To-

bacco Company and Conley Foil Company, their officers,

directors, agents, servants and employés are hereby re-

strained and enjoined from acquiring by conveyance or

otherwise, the plant or business of any such corporation

wherein any one of them now holds or owns stock; and

each and all of said defendant corporations so holding

stock in other corporations as above specified, their officers,

directors, agents, servants and employés, are further en-

joined from voting or attempting to vote said stock at any

meeting of the stockholders of the corporation issuing the

same and from exercising or attempting to exercise any

control, direction, supervision or influence whatsoever over

the acts and doings of such corporation. And it is further

ordered and decreed that each and every of the defendant

corporations the stock of which is held by any other de-

fendant corporation as hereinbefore shown, their officers,

directors, servants and agents, be and they are hereby re-

spectively and collectively restrained and enjoined from

permitting the stock so held to be voted by any other de-

UNITED STATES v. AMERICAN TOBACCO CO. 153

221 U.S. Opinion of the Court.

fendant holding or claiming to own the same or by its at-

torneys or agents at any corporate election for directors or

officers and from permitting or suffering any other defend-

ant corporation claiming to own or hold stock therein, or

its officers or agents, to exercise any control whatsoever

over its corporate acts.”

Judgment for costs was given in favor of the petitioner

and against the defendants as to whom the petition had

not been dismissed, except the R. P. Richardson, Jr.,

& Company, a corporation which had consented to the

decree. The decree also contained a provision that the

defendants or any of them should not be prevented “from

the institution, prosecution or defense of any suit, action

or proceeding to prevent or restrain the infringement of a

trade-mark used in interstate commerce or otherwise assert

or defend a claim to any property or rights.”’ In the event

of a taking of an appeal to this court, the decree provided

that the injunction which it directed ‘shall be suspended

during the pendency of such appeal.”

The United States appealed, as did also the various de-

fendants against whom the decree was entered. For the

Government it is contended: 1. That the petition should

not have been dismissed as to the individual defendants.

2. That it should not have been dismissed as to the two

foreign corporations—the Imperial Tobacco Company

and the British-American Tobacco Company and the

domestic corporations controlled by the latter, and that,

on the contrary, the decree should have commanded the

observance of the Anti-trust Act by the foreign corpora-

tions so far as their dealings in the United States were con-

cerned, and should have restrained those companies from

doing any act in the United States in violation of the Anti-

trust Act, whether or not the right to do said acts was as-

serted to have arisen pursuant to the contracts made out-

side of or within the United States. 3. The petition should

not have been dismissed as to the United Cigar Stores

Cn Ne pees els

154 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

Company. 4. The final decree should have adjudged de-

fendants parties to unlawful contracts and conspiracies.

5. The final decree should have adjudged that defendants

were attempting to monopolize and had monopolized parts

of commerce. More particularly, it is urged, it should

have adjudged that the American Tobacco Company,

American Snuff Company, American Cigar Company,

American Stogie Company, MacAndrews & Forbes Com-

pany, the Conley Foil Company and the British-American

Tobacco Company were severally attempting to monopo-

lize and had monopolized parts of commerce, and that

appropriate remedies should have been applied. 6. The

decree was not sufficiently specific, since it should have

described with more particularity the methods which the

defendants had followed in forming and carrying out their

unlawful purpose, and should have prohibited the resort

to similar methods. 7. The decree should have specified

the shares in corporations disclosed by the evidence to be

owned by the parties to the conspiracy, and should have

enjoined those parties from exercising any control over the

corporations in which such stock was held, and the latter,

if made defendant, from permitting such control, and

should have also enjoined the collecting of any dividends

upon the stock. 8. The decree improperly provided that

nothing therein should prevent defendants from prose-

cuting or defending suits; also improperly suspended the

injunction pending appeal.

The defendants, by their assignments of error, complain

because the petition was not dismissed as to all, and more

specifically, (a) because they were adjudged parties to a

combination in restraint of interstate and foreign com-

merce, and enjoined accordingly; (b) because certain de-

fendant corporations holding shares in others were en-

joined from voting them or exercising control over the

issuing company, and the latter from permitting this; and

(ec) because the American Tobacco Company, American

UNITED STATES », AMERICAN TOBACCO CO. 155

221 U.S. Opinion of the Court.

Snuff Company, American Cigar Company, American

Stogie Company and the MacAndrews & Forbes Com-

pany were adjudged unlawful combinations and restrained

from engaging in interstate and foreign commerce.

The elaborate arguments made by both sides at bar pre-

sent in many forms of statement the conflicting con-

tentions resulting from the nature and character of the

suit and the defense thereto, the decree of the lower court

and the propositions assigned as error to which we have

just referred. In so far as all or any of these contentions,

as many of them in fact do, involve a conflict as to the

application and effect of §§ 1 and 2 of the Anti-trust

Act, their consideration has been greatly simplified by

the analysis and review of that act and the construction af-

fixed to the sections in question in the case of Standard Oil

Company v. United States, quite recently decided, ante,

p- 1. In so far as the contentions relate to the disputed

propositions of fact, we think from the view which we take

of the case they need not be referred to, since in our opinion

the case can be disposed of by considering only those facts

which are indisputable and by applying to the inferences

properly deducible from such facts the meaning and effect

of the law as expounded in accordance with the previous

decisions of this court.

We shail divide our investigation of the ease into three

subjects: First, the undisputed facts; second, the meaning

of the Anti-trust Aet and its application as correctly con-

strued to the ultimate conclusions of fact deducible from

the proof; third, the remedies to be applied.

First. Undisputed facts.

The matters to be considered under this heading we

think can best be made clear by stating the merest out-

line of the condition of the tobacco industry prior to what

is asserted to have been the initial movement in the com-

bination which the suit assails and in the light so afforded

to briefly recite the history of the assailed acts and con-

RR AG) SE eS

React Siena Rc saa

Siete Mites

156 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

tracts. We shall divide the subject into two periods,

(a) the one from the time of the organization of the first

or old American Tobacco Company in 1890 to the organ-

ization of the Continental Tobacco Company, and (b) from

the date of such organization to the filing of the bill in this

case.

Summarizing in the broadest way the conditions which

obtained prior to 1890, as to the production, manufacture

and distribution of tobacco, the following general facts

are adequate to portray the situation.

Tobacco was grown in many sections of the country

having diversity of soil and climate and therefore was

subject to various vicissitudes resulting from the places

of production and consequently varied in quality. The

great diversity of use to which tobacco was applied in

manufacturing caused it to be that there was a demand

for all the various qualities. The demand for all qualities

was not local, but widespread, extending as well to domes-

tic as to foreign trade, and, therefore, all the products were

marketed under competitive conditions of a peculiarly

advantageous nature. The manufacture of the product

in this country in various forms was successfully carried

on by many individuals or concerns scattered throughout

the country, a larger number perhaps of the manufacturers

being in the vicinage of production and others being ad-

vantageously situated in or near the principal markets

of distribution.

Before January, 1890, five distinct concerns—Allen &

Ginter, with factory at Richmond, Va.; W. Duke, Sons &

Co., with factories at Durham, North Carolina, and New

York City; Kinney Tobacco Company, with factory at

New York City; W. 8. Kimball & Company, with factory

at Rochester, New York; Goodwin & Company, with

factory at Brooklyn, New York—manufactured, dis-

tributed and sold in the United States and abroad 95 per

cent of all the domestic cigarette and less than 8 per cent

UNITED STATES v. AMERICAN TOBACCO CO. 157

221 U.S. Opinion of the Court.

of the smoking tobacco produced in the United States.

There is no doubt that these factories were competitors

in the purchase of the raw product which they manu-

factured and in the distribution and sale of the manu-

factured products. Indeed it is shown that prior to 1890

not only had normal and ordinary competition existed

between the factories in question, but that the competition

had been fierce and abnormal. In January, 1890, having

agreed upon a capital stock of $25,000,000, all to be divided

amongst them, and who should be directors, the concerns

referred to organized the American Tobacco Company in

New Jersey, “for trading and manufacturing,” with broad

powers, and conveyed to it the assets and businesses, in-

cluding good will and right to use the names of the old

concerns; and thereafter this corporation carried on the

business of all. The $25,000,000 of stock of the Tobacco

Company was allotted to the charter members as follows:

Allen & Ginter, $3,000,000 preferred, $4,500,000 common:

W. Duke, Sons & Co., $3,000,000 preferred, $4,500,000

common; Kinney Tobacco Company, $2,000,000 preferred,

$3,000,000 common; W. 8. Kimball & Co., $1,000,000 pre-

ferred, $1,500,000 common ; and Goodwin «& Co., $1,000,000

preferred, $1,500,000 common.

There is a charge that the valuation at which the re-

spective properties were capitalized in the new corporation

was enormously in excess of their actual value. We, how-

ever, put that subject aside, since we propose only to deal

with facts which are not in controversy.

Shortly after the formation of the new corporation the

Goodwin & Co. factory was closed, and the directors or-

dered ‘‘that the manufacture of all tobacco cigarettes be

concentrated at Richmond.” The new corporation in

1890, the first year of its operation, manufactured about

two and one half billion cigarettes, that is, about 96 or

97 per cent of the total domestic output, and about five

and one-half million pounds of smoking tobacco out

eee ie a ew ON

rob ha et CA rd

de fe) SASS RK a etal

158 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

of a total domestic product of nearly seventy million

pounds.

In a little over a year after the organization of the com-

pany it increased its capital stock by ten million dollars.

The purpose of this increase is inferable from the con-

siderations which we now state.

There was a firm known as Pfingst, Doerhoefer & Co.,

consisting of a number of partners, who had been long and

successfully carrying on the business of manufacturing

plug tobacco in Louisville, Kentucky, and distributing it

through the channels of interstate commerce. In January,

1891, this firm was converted into a corporation known as

the National Tobacco Works, having a capital stock of

$400,000 all of which was issued to the partners. Almost

immediately thereafter, in the month of February, the

American Tobacco Company became the purchaser of all

the capital stock of the new corporation, paying $600,000

cash and $1,200,000 in stock of the American Tobacco

Company. The members of the previously existing firm

bound themselves by contract with the American Tobacco

Company to enter its service and manage the business

and property sold, and each further agreed that for ten

years he would not engage in carrying on, directly or in-

directly, or permit or suffer the use of his name in connection

with the carrying on of the tobacco business in any form.

In April following, the American Tobacco Company

bought out the business of Philip Whitlock, of Richmond,

Virginia, who was engaged in the manufacture of cheroots

and cigars, and with the exclusive right to use the name of

Whitlock. The consideration for this purchase was

$300,000, and Whitlock agreed to become an employé

of the American Tobacco Company for a number of years

and not to engage for twenty years in the tobacco business.

In the month of April the American Tobacco Company

also acquired the business of Marburg Brothers, a well-

known firm located at Baltimore, Maryland, and engaged

UNITED STATES v. AMERICAN TOBACCO CO. 159

221 U.S. Opinion of the Court.

in the manufacture and distribution of tobacco, princi-

pally smoking and snuff. The consideration was a cash

payment of $164,637.65 and stock to the amount of

$3,075,000. The members of the firm also conveyed the

right to the use of the firm name and agreed not to engage

in the tobacco business for a lengthy period.

Again, in the same month, the American Tobacco

Company bought out a tobacco firm of old standing, also

located in Baltimore, known as G. W. Gail & Ax, engaged

principally in manufacturing and selling smoking tobacco,

buying with the business the exclusive right to use the

name of the firm or the partners, and the members of the

firm agreed not to engage in the tobacco business for a

specified period. The consideration for this purchase was

$77,582.66 in cash and stock to the amount of $1,760,000.

The plant was abandoned soon after.

The result of these purchases was manifested at once

in the product of the company for the year 1891, as will

appear from a note in the margin.’ It will be seen that

as to cheroots, smoking tobacco, fine cut tobacco, snuff

and plug tobacco, the company had become a factor in all

branches of the tobacco industry.

Referring to the occurrences of the year 1891, as in all

1 The output of the American Tobacco Company for 1891 was—

Number. Pounds.

MIE as viens Shs eae vcseaseert 2,788,778,000 = .....,

Cheroots and little cigars............ 40,009,000 — .....,

NS Bienes ccaiets Cake es oa ee 13,813,355

EE tee Nery ses ee ee ae he gee 560,633

ARO es eet ee ane ne Bt ae 383,162

MRA s rani srt rte eee oats) SE ends 4,442,774

Total output for the United States, 1891-—

| Sere mnie °- > | iii een

ES nce ast gaa Gee eco A. eee: 76,708,300

PN er kicy du hoes wae ea Ta ea tes 166,177,915

MCR Caer Tas eadu cele eas ke tL eae: 10,674,241

a as Daca ed ay

Waiabiscthiss..

‘

160 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

respects typical of the occurrences which took place in all

the other years of the first period, that is during the years

1892, 1893, 1894, 1895, 1896, 1897 and 1898, we content

ourselves with saying that it is undisputed that between

February, 1891, and October, 1898, including the pur-

chases which we have specifically referred to, the American

Tobacco Company acquired fifteen going tobacco concerns

doing business in the States of Kentucky, Louisiana,

Maryland, Michigan, Missouri, New York, North Caro-

lina and Virginia. For ten of the plants an all cash con-

sideration of $6,410,235.26 was paid, while the payments

for the remaining five aggregated in cash $1,115,100.95

and in stock $4,123,000. It is worth noting that the last

purchase, in October, 1898, was of the Drummond To-

bacco Company, a Missouri corporation dealing princi-

pally in plug, for which a cash consideration was paid

of $3,457,500.

The corporations which were combined for the purpose

of forming the American Tobacco Company produced

a very small portion of plug tobacco. That an increase

in this direction was contemplated is manifested by the

almost immediate increase of the stock and its use for the

purpose of acquiring, as we have indicated, in 1891 and

1892, the ownership and control of concerns manufacturing

plug tobacco and the consequent increase in that branch

of production. There is no dispute that as early as 1893

the president of the American Tobacco Company, by

authority of the corporation, approached leading manu-

facturers of plug tobacco and sought to bring about a

combination of the plug tobacco interests, and upon the

failure to accomplish this, ruinous competition, by lower-

ing the price of plug below its cost, ensued. As a result of

this warfare, which continued until 1898, the American

Tobacco Company sustained severe losses aggregating

more than four millions of dollars. The warfare produced

its natural result, not only because the company acquired

UNITED STATES v. AMERICAN TOBACCO CO. 161

221 U.S. Opinion of the Court.

during the last two years of the campaign, as we have

stated, control of important plug tobacco concerns, but

others engaged in that industry came to terms. We say

this because in 1898, in connection with several leading

plug manufacturers, the American Tobacco Company or-

ganized a New Jersey corporation styled the Continental

Tobacco Company, for “trading and manufacturing,”

with a capital of $75,000,000, afterwards increased to

$100,000,000. The new company issued its stock and took

transfers to the plants, assets and businesses of five large

and successful competing plug manufacturers.!

The American Tobacco Company also conveyed to

this corporation, at large valuations, the assets, brands,

real estate and good will pertaining to its plug tobacco

business, including the National Tobacco Works, the

James G. Butler Tobacco Co., Drummond Tobacco Com-

pany, and Brown Tobacco Co., receiving as consideration

$30,274,200 of stock (one-half common and one-half

preferred), $300,000 cash, ard an additional sum for losses

sustained in the plug business during 1898, $840,035. Mr.

Duke, the president of the American Tobacco Company,

also became president of the Continental Company.

Under the preliminary agreement which was made

looking to the formation of the Continental Tobacco

1P. J. Sorg Co., having factory at Middletown, Ohio, who received

preferred stock $4,350,000, common stock $4,525,000, and cash

$224,375.

John Finzer and Brothers, having factory at Louisville, Kentucky,

who received preferred stock $2,250,000, common stock $3,050,000,

and cash $550,000.

Daniel Scotten & Co., having factory at Detroit, Michigan, who

received preferred stock $1,911,100, and common stock $3,012,500.

P. H. Mayo & Bros., having factory at Richmond, Va., who re-

ceived preferred stock $1,250,000, common stock $1,925,000, and cash

$66,125.

John Wright Co., having factory at Richmond, Va., who received

preferred stock $495,000, common stock $495,000, and cash $4,116.67.

VOL. ccxxI—l1

Y 6 tt ALICE AP RSE IIR

eer

162 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

Company, that company acquired from the holders all the

$3,000,000 of the common stock of the P. Lorillard Com-

pany in exchange for $6,000,000 of its stock, and $1,581,300

of the $2,000,000 preferred in exchange for notes aggregat-

ing a sum considerably larger. The Lorillard Company,

however, although it thus passed practically under the

control of the American Tobacco Company by virtue of

its ownership of stock in the Continental Company, was

not liquidated, but its business continued to be conducted

as a distinct corporation, its goods being marked and put

upon the market just as if they were the manufacture of

an independent concern.

Following the organization of the Continental Tobacco

Company the American Tobacco Company increased its

capital stock from thirty-five millions of dollars to seventy

millions of dollars, and declared a stock dividend of one

hundred per cent on its common stock, that is, a stock

dividend of $21,000,000.

As the facts just stated bring us to the end of the first

period which at the outset we stated it was our purpose

to review, it is well briefly to point out the increase in

the power and control of the American Tobacco Com-

pany and the extension of its activities to all forms of to-

bacco products which had been accomplished just prior

to the organization of the Continental Tobacco Company.

Nothing could show it more clearly than the following:

At the end of the time the company was manufacturing

eighty-six per cent or thereabouts of all the cigarettes

produced in the United States, above twenty-six per cent

of all the smoking tobacco, more than twenty-two per cent

of all plug tobacco, fifty-one per cent of all little cigars,

six per cent each of all snuff and fine cut tobacco, and over

two per cent of all cigars and cheroots.

A brief reference to the occurrences of the second period,

that is, from and after the organization of the Continental

Tobacco Company up to the time of the bringing of this

UNITED STATES v. AMERICAN TOBACCO CO. 163

221 U.S. Opinion of the Court.

suit, will serve to make evident that the transactions in

their essence had all the characteristics of the occurrences

of the first period.

In the year 1899 and thereafter either the American or

the Continental company, for cash or stock, at an aggre-

gate cost of fifty millions of dollars ($50,000,000), bought

and closed up some thirty competing corporations and

partnerships theretofore engaged in interstate and foreign

commerce as manufacturers, sellers, and distributors of to-

bacco and related commodities, the interested parties

covenanting not to engage in the business. Likewise the

two corporations acquired for cash, by issuing stock, and

otherwise, control of many competing corporations, now

going concerns, with plants in various States, Cuba and

Porto Rico, which manufactured, bought, sold and dis-

tributed tobacco products or related articles throughout

the United States and foreign countries, and took from the

parties in interest covenants not to engage in the tobacco

business.

The plants thus acquired were operated until the merger

in 1904, to which we shall hereafter refer, as a part of the

general system of the American and Continental com-

panies. The power resulting from and the purpose con-

templated in making these acquisitions by the companies

just referred to, however, may not be measured by con-

sidering alone the business of the company directly ac-

quired, since some of those companies were made the

vehicles as representing the American or Continental com-

pany for acquiring and holding the stock of other and

competing companies, thus amplifying the power result-

ing from the acquisitions directly made by the American

or Continental company, without ostensibly doing so.

It is besides undisputed that in many instances the ac-

quired corporations with the subsidiary companies over

which they had control through stock ownership were

carried on ostensibly as independent concerns disconnected

sat

hatches

Na eM iA

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S.... Beh inetd

164 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

from either the American or the Continental company,

although they were controlled and owned by one or the

other of these companies. Without going into details on

these subjects, for the sake of brevity, we append in the

margin a statement of the corporations thus acquired,

with the mention of the competing concerns which such

corporations acquired. ;

1 Monopol Tobacco Works (New York, 3 N. Y. \—Capital $40,000—

cigarettes and smoking tobacco. In 1899 the American Tobacco Co.

acquired all the shares for $250,000, and it is now a selling agency.

Luhrman & Wilbern Tobacco Company (Middletown, Ohio)—

Capital $900,000—scrap tobacco. This business was formerly carried

on by a partnership.

Mengel Box Company (Louisville, Ky.)—Capital $2,000,000—

boxes for packing tobacco. This company has acquired the stock

($150,000) of Columbia Box Company and of Tyler Box Company

($25,000), both at St. Louis.

The Porto Rican-American Tobacco Company (Porto Rico)—Capi-

tal $1,799,600. In 1899 the American Company caused the organiza-

tion of the Porto Rican-American Tobacco Company, which took over

the partnership business of Rucabado y Portela—manufacturer of

cigars and cigarettes—with covenants not to compete. The American

Tobacco Company and American Cigar Company each hold $585,300

of the stock; the balance is in the hands of individuals.

Kentucky Tobacco Product Company (Louisville, Ky.)—Capital

$1,000,000. In 1899 the Continental Company acquired control of the

Louisville Spirit-Cured Tobacco Co., engaged in curing and treating

tobacco and utilizing the stems for fertilizers. By agreement, the

Kentucky Tobacco Product Company was organized in New Jersey,

with $1,000,000 capital, $450,000 issued to the old stockholders, and

$550,000 to Continental Company as consideration for agreement to

supply stems.

Golden Belt Manufacturing Company (North Carolina)—Capital,

$700,000—cotton bags and containers. In 1899 the American Tobacco

Company acquired the business of this corporation, which was formed

to take over a going business.

The Conley Foil Company (New York)—Tinfoil Combination—

Capital, $825,000. In December, 1899, The American Tobacco Com-

pany secured control of the business of John Conley & Son (Partner-

ship), New York, N. Y., manufacturers of tinfoil, an essential for pack-

UNITED STATES v. AMERICAN TOBACCO CO. 165

221 U.S. Opinion of the Court.

It is of the utmost importance to observe that the ac-

quisitions made by the subsidiary corporations in some

cases likewise show the remarkable fact stated above, that

is, the disbursement of enormous amounts of money to

ately acquired the majority shares and The American ( ‘ompany now

holds $5,000,000 of stock. The separate organization has been pre-

served.

There was acquired in the name of the new Reynolds Company,

with covenants against competition, the following plants:

In 1900, T. L. Vaughn & Company, partnership, of Winston, N. C.;

consideration, $90,506; Brown Brothers Company, a North Carolina

corporation, Winston, N. C.; consideration, $67,615; and P. H. Hanes

& Company and B. F. Hanes & Company, Winston, N. C., partner-

ship; consideration, $671,950.

In 1905, Rucker & Witten Tobacco Company, Martinsville, Va.;

consideration, $512,898.

In 1906, D. H. Spencer & Company, Martinsville, Va.; considera-

tion, $314,255.

(All of the foregoing ,.lants were closed as soon as purchased.)

A majority of the $400,000 capital stock in the Liipfert-Scales Com-

pany, of Winston, N. C., a corporation largely engaged in the manu-

facture of plug tobacco and interstate and foreign commerce in leaf

tobacco and its products, was acquired by the Reynolds Company.

The separate organization of the Liipfert-Scales Company is preserved

and the business carried on under its corporate name.

The R. J. Reynolds Tobacco Company also holds $98,300 of stock of

| ee rte

166 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

acquire plants, which on being purchased were not utilized

but were immediately closed. It is also to be remarked,

that the facts stated in the memorandum in the margin

show on their face a singular identity between the con-

ceptions which governed the transactions of this latter

period with those which evidently existed at the very

birth of the original organization of the American Tobacco

Company, as exemplified by the transactions in the first

period. A statement of particular transactions outside

of those previously referred to as having occurred during

the period in question will serve additionally to make the

situation clear. And to accomplish this purpose we shall,

as briefly as may be consistent with clarity, separately

refer to the facts concerning the organization during the

the MacAndrews & Forbes Company and $9,600 of the Amsterdam

Supply Company.

Blackwell’s Durham Tobacco Company (Durham, N. C.)—Capital

$1,000,000. In 1899 The American Tobacco Company procured for

$4,000,000 all the stock of Blackwell’s Durham Tobacco Company at

Durham, N. C., manufacturer and distributer of tobacco products.

Thereupon the Blackwell’s Durham Tobacco Company, of New Jersey,

capital, $1,000,000, all owned by the American, was organized and took

over the assets of the old company, then under receivership. Its sepa-

rate organization has been preserved.

The Durham Company has acquired control of the following com-

petitors—Reynold’s Tobacco Company; F. R. Penn Tobacco Com-

pany; and Wells-Whitehead Tobacco Company.

The following companies came also under the control of the American

Tobacco Company through acquired stock ownership.

S. Anargyros——capital $650,000—Turkish cigarettes. In 1890 The

American Tobacco Company procured the organization of corporation

of S. Anargyros, which took over that individual's going business and

has since controlled it. Through this company the business in Turkish

cigarettes is largely conducted.

The John Bollman Company (San Franciseo)—Capital $200,000—

cigarettes. In 1900 The American Tobacco Company procured

organization of The John Boilman Company, which took over the

business of the former concern in exchange for stock. Its separate

organization has been preserved.

Po wean dees

UNITED STATES v. AMERICAN TOBACCO CO. 167

221 U.S. Opinion of the Court.

second period of the five corporations which were named

as defendants in the bill, as heretofore stated and which

for the purpose of designation we have hitherto classified

as accessory defendants, such corporations being the

American Snuff Company, American Cigar Company,

American Stogie Company, MacAndrews & Forbes Com-

pany (licorice), and Conley Foil Company.

(1). The American Snuff Company.

As we have seen, the American Tobacco Company at

the commencement of the first period produced a very

small quantity of snuff. Its capacity, however, in that

regard was augmented owing particularly to the formation

of the Continental Tobacco Company and the acquisition

of the Lorillard Company, by which it came to be a serious

factor as a snuff producer. There shortly ensued an

aggressive competition in the snuff business between the

American Tobacco Company, with the force acquired

from the vantage ground resulting from the dominancy

of its expanded organization, and others in the trade oper-

ating independently of that organization. The result was

identical with that which had previously arisen from like

conditions in the past.

In March, 1900, there was organized in New Jersey a

corporation known as The American Snuff Company, with

a capital of $25,000,000, one-half preferred and one-half

common, which took over the snuff business of the P.

Lorillard Company, Continental Tobacco Company and

The American Tobacco Company, with that of a large

competitor, viz: The Atlantic Snuff Co. The stock of

the new company was thus apportioned: Atlantic Snuff

Company, preferred, $7,500,000, common, $25,000,000;

P. Lorillard Company, preferred, $1,124,700, common,

$3,459,400; The American Tobacco Company, preferred,

$1,177,800, common, $3,227,500; Continental Tobaeco

Company, preferred, $197,500, common, $813,100. The

stock issued to Continental Tobacco Company and the

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168 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

defendants, P. Lorillard Company and the American

Tobacco Company, is still held by the latter, and they have

at all times had a controlling interest in the Snuff Com-

pany. All the companies, together with their officers

and directors, covenanted that they would not thereafter

engage as competitors in the tobacco business or the manu-

facture, sale, or distribution of snuff.

Among the assets transferred by the Atlantic Snuff

Company to American Snuff Company were all the shares

($600,000) of W. E. Garrett & Sons, Inc., then and now

one of the oldest and very largest producers of snuff, for

a long time and still engaged at Yorkland, Del., in inter-

state and foreign commerce in tobacco and its products,

and which controlled through stock ownership the South-

ern Snuff Company, Memphis, Tenn.; Dental Snuff Com-

pany, Lynchburg, Va., and Stewart-Ralph Snuff Company,

Clarksville, Tenn. The separate existence of W. E. Gar-

rett & Sons, Inc., has been preserved and its business con-

ducted under the corporate name. In March, 1900, the

American Snuff Company acquired all the shares of

George W. Helme Company, one of the oldest and largest

producers of snuff and actively engaged at Helmetta, N. J.,

in interstate and foreign commerce in competition with

defendants, by issuing in exchange therefor $2,000,000

preferred stock and $1,000,000 common; and it thereafter

took a conveyance of all assets of the acquired company

and now operates the plant under its own name.

As a result of the transactions just stated it came to pass

that the American Tobacco Company, which had at the

end of the first period only a very small percentage of the

snuff manufacturing business, came virtually to have the

dominant control as a manufacturer of that product.

2. Conley Foil Company—manufacturers of tinfoil, an

essential for packing tobacco products.

In December, 1899, the American Tobacco Company

secured control of the business of John Conley & Sons, a

a [AO AS et A a AAA AE NAA Sete NHS

UNITED STATES ». AMERICAN TOBACCO CO. 169

221 U.S. Opinion of the Court.

partnership of New York City. By agreement the Conley

Foil Company was incorporated in New York “for trad-

ing and manufacturing,” ete., with $250,000 capital, ul-

timately increased to $825,000. The corporation took

over the business and assets of the firm, and the American

Tobacco Company became owner of a majority of the

shares of stock. The Conley Foil Company has acquired

all the shares of stock of the Johnson Tinfoil & Metal

Company, of St. Louis, a leading competitor, and they

supply under fixed contracts at remunerative prices the

tinfoil used by the defendants, which constitutes the major

part of the total production in the United States.

3. American Cigar Company.

Prior to 1901 the American and Continental tobacco

companies manufactured, sold, and distributed cigars,

stogies, and cheroots. In the year stated the companies

determined to engage in the business upon a larger scale.

Under agreement with Powell, Smith & Company, large

manufacturers and dealers in cigars, they caused the in-

corporation in New Jersey of the American Cigar Com-

pany “for trading and manufacturing,” ete., to which all

three conveyed their said business, and it has since carried

on the same. The American and Continental companies

each acquired 461% per cent of the shares, and Powell,

Smith & Company 7 per cent; the original capitalization

was $10,000,000 (afterwards $20,000,000), and more than

three-fourths is owned by the former. The Cigar Com-

pany acquired many competitors (partnerships and cor-

porations) engaged in interstate and foreign commerce,

taking from the parties covenants against engaging in the

tobacco business; and it has also procured the organiza-

tion of controlled corporations which have acquired com-

peting manufacturers, jobbers and distributors in the

United States, Cuba and Porto Rico. It manufactures,

sells and distributes a considerable per centage of domestic

cigars; is the dominating factor in the tobacco business,

So FR BEELER MONEE BSS RP

170 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

foreign and domestic, in Cuba and Porto Rico, and is

there engaged in tobacco planting. It also controls cor-

porate jobbers in California, Alabama, Virginia, Pennsyl-

vania, Georgia, Louisiana, New Jersey and Tennessee.

4. The MacAndrews & Forbes Company—manufacturers

of licorice.

There is no question that licorice paste is an essential

ingredient in the manufacture of plug tobacco, and that

one who is debarred from obtaining such paste would there-

fore be unable to engage in or carry on the manufacture

of such product. The control over this article was thus

secured: In May, 1902, the Continental Company se-

cured control of MacAndrews & Forbes Co. of Newark,

New Jersey, and organized ‘“‘for trading and manufactur-

ing’’ a corporation known as the MacAndrews & Forbes

Co., with a capital of $7,000,000, $4,000,000 preferred

and $3,000,000 common, which took over the business

of MacAndrews & Forbes and another large competitor.

The Continental Company acquired two-thirds of the

common stock by agreeing to purchase its supply of paste

from the new company. The American Tobacco Com-

pany, at the time of the filing the bill, was the owner of

$2,112,900 of the common stock and $750,000 preferred.

By various purchases and agreements the MacAndrews

& Forbes Company acquired, substantially, the business

of all competitors. Thus, in June, 1902, it purchased

the business of the Stamford Mfg. Co., of Stamford, Con-

necticut, and incorporated the National Licorice Com-

pany, which acquired the business of Young & Smylie

and F. B. & V. P. Seudder, and the National Company

agreed with MacAndrews «& Forbes not to produce licorice

for tobacco manufacturers. In 1906 all the stock in the

J. S. Young Company ($1,800,000), which had been or-

ganized to take over the business of the J. S. Young Co.

of Baltimore, Md., was acquired by the MacAndrews &

Forbes Co. The MacAndrews & Forbes Co. use in excess

UNITED STATES v. AMERICAN TOBACCO CO. 171

221 U.S. Opinion of the Court.

of ninety-five per cent of the licorice root consumed in

the United States.

5. American Stogie Company.

In May, 1903, the American Cigar Company and the

American and Continental Tobacco Companies caused

the American Stogie Company to be incorporated in New

Jersey, with $11,979,000 capital, which immediately took

over the stogie and tobie business of the companies named

in exchange for $8,206,275 stock and then in the usual

ways acquired the business of others in the manufacture,

sale, and distribution of such products, with covenants

not to compete. It acquired in exchange for $3,647,725

stock all shares of United States Cigar Company (which

had previously acquired and owned the business of im-

portant competitors) and subsequently took the convey-

ance of the plant and assets. The majority shares al-

ways have been held by defendant, the American Cigar

Company.

As we think the legitimate inferences deducible from the

undisputed facts which we have thus stated will be suffi-

cient to dispose of the controversy, we do not deem it neces-

sary to expand this statement so as to cause it to embrace

a recital of the undisputed facts concerning the entry of the

American Tobaceo Company into the retail tobacco trade

through the acquisition of a controlling interest in the stock

of what is known as the United Cigar Stores Company,

as well as to some other subjects which for the sake of

brevity we likewise pass over, in order to come at once

to a statement concerning the foreign companies.

The English Companies.

In September, 1901, the American Tobacco Co. pur-

chased for $5,347,000 a Liverpool (Eng.) corporation,

known as Ogden’s Limited, there engaged in manufactur-

ing and distributing tobacco products. A trade conflict

which at once ensued caused many of the English manu-

facturers to combine into an incorporation known as the

172 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

Imperial Tobacco Company of Great Britain and Ireland,

capital 15,000,000, afterwards increased to 18,000,000,

pounds sterling. The trade war was continued between

this corporation and the American Tobacco Company,

with a result substantially identical with that which had

hitherto, as we have seen, arisen from such a situation.

In September, 1902, the Imperial and the American

companies entered into contracts (executed in England)

stipulating that the former should limit its business to the

United Kingdom, except purchasing leaf in the United

States (it buys 54,000,000 pounds annually); that the

American companies should limit their business to the

United States, its dependencies and Cuba; and that the

British-American Tobacco Company, with capital of

6,000,000 pounds sterling apportioned between them,

should be organized, take over the export business of both,

and operate in other countries, etc. This arrangement,

was immediately put into effect, and has been observed.

The Imperial Company holds one-third and the Ameri-

can Company two-thirds of the capital stock of the British-

American Tobacco Company, Limited. The latter com-

pany maintains a branch office in New York City and the

vice-president of the American Tobacco Company is a

principal officer. This company uses large quantities

of domestic leaf, partly exported to various plants abroad

and about half manufactured here and then exported.

By agreement, all this is purchased through the American

Tobacco Company. In addition to many plants abroad

it has warehouses in various States and plants at Peters-

burg, Va., and Durham, N. C., where tobacco is manu-

factured and then exported.

The purchase of necessary leaf tobacco in the United

States by the Imperial Company is now made through a

resident general agent and is exported as a part of foreign

commerce.

Not to break the continuity of the narrative of facts we

UNITED STATES v. AMERICAN TOBACCO CO. 173

221 U.S. Opinion of the Court.

have omitted in the proper chronological order to state

the facts relative to what was known as the Consolidated

Tobacco Company. We now particularly refer to that

subject.

The Consolidated Tobacco Co.

In June, 1901, parties largely interested in the American

and Continental companies caused the incorporation in

New Jersey of the Consolidated Tobacco Company, capi-

tal $30,000,000 (afterwards $40,000,000), with broad pow-

ers and perpetual existence; to do business throughout

the world, and to guarantee securities of other companies,

ete. A majority of shares was taken by a few individuals

connected with the old concerns: A. N. Brady, J. B. Duke,

A. H. Payne, Thomas Ryan, W. C. Whitney, and P. A. B.

Widener. J. B. Duke, president of both the old com-

panies, became president of the Consolidated. Largely

in exchange for bonds the new company acquired sub-

stantially all the shares of common stock of the old ones.

Its business, of holding and financing, was continued until

1904, when, with the American and Continental com-

panies, it was merged into the present American Tobacco

Company.

By proceedings in New Jersey, October, 1904, the (old)

American Tobacco Company, Continental Tobacco Com-

pany and Consolidated Tobacco Company were merged

into one corporation, under the name of The American

Tobacco Company, the principal defendant here. The

merged company, with perpetual existence, was capitalized

at $180,000,000 ($80,000,000 preferred, ordinarily with-

out power to vote).

The powers conferred by the charter are stated in the

margin.!

‘To buy, manufacture, sell and otherwise deal in tobacco and the

products of tobacco in any and all forms; . . . to guarantee

dividends on any shares of the capital stock of any corporation in

which said merged corporation has an interest as stockholder;

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174 OCTOBER TERM, 1910.

Opinion of the Court. 219 U.S.

Prior to the merger the Consolidated Tobacco Com-

pany, a majority of whose $40,000,000 share capital was

held by J. B. Duke, Thomas F. Ryan, William C. Whitney,

Anthony N. Brady, Peter A. B. Widener and Oliver H.

Payne, had acquired, as already stated, nearly all common

shares of both old American and Continental companies,

and thereby control. The preferred shares, however,

were held by many individuals. Through the method of

distribution of the stock of the new company, in exchange

for shares in the old American and in the Continental

Company, it resulted that the same six men in control of

the combination through the Consolidated Tobaeco Com-

pany continued that control by ownership of stock in the

merged or new American Tobacco Company. The assets,

property, etc., of the old companies passed to the American

Tobacco Company (merged), which has since carried on

the business.

The record indisputably discloses that after this merger

the same methods which were used from the beginning

continued to be employed. Thus, it is beyond dispute:

First, that since the organization of the new American

Tobacco Company that company has acquired four large

tobacco concerns, that restrictive covenants against en-

gaging in the tobacco business were taken from the scllers,

and that the plants were not continued in operation but

to carry on any business operations deemed by such merged corpora-

tion to be necessary or advisable in connection with any of the objects

of its incorporation or in furtherance of any thereof, or tending to in-

crease the value of its property or stock; . . . to conduct business

in all other States, territories, possessions and dependencies of the

United States of America, and in all foreign countries; . . . to

purchase or otherwise acquire and hold, sell, assign, transfer, mort-

gage, pledge, or otherwise dispose of the shares of the capital stock or

of any bonds, securities, or other evidences of indebtedness created by

any other corporation or corporations of this or any other State or

government, and to issue its own obligations in payment or exchange

therefor. . .

UNITED STATES v. AMERICAN TOBACCO CO. 175

221 U.S. Opinion of the Court.

were at once abandoned. Second, that the new company

has besides acquired control of eight additional concerns,

the business of such concerns being now carried on by four

separate corporations, all absolutely controlled by the

American Tobacco Company, although the connection

as to two of these companies with that corporation was

long and persistently denied.

Thus reaching the end of the second period and coming

to the time of the bringing of the suit, brevity prevents

us from stopping to portray the difference between the con-

dition in 1890 when the (old) American Tobacco Com-

pany was organized by the consolidation of five competing

cigarette concerns and that which existed at the com-

mencement of the suit. That situation and the vast

power which the principal and accessory corporate de-

fendants and the small number of individuals who own a

majority of the common stock of the new American

Tobacco Company exert over the marketing of tobacco

as a raw product, its manufacture, its marketing when

manufactured, and its consequent movement in the chan-

nels of interstate commerce indeed relatively over foreign

commerce, and the commerce of the whole world, in the

raw and manufactured products stand out in such bold

relief from the undisputed facts which have been stated

as to lead us to pass at once to the second fundamental

proposition which we are required to consider. That is,

the construction of the Anti-trust Act and the application

of the act as rightly construed to the situation as proven

in consequence of having determined the ultimate and final

inferences properly deducible from the undisputed facts

which we have stated.

The construction and application of the Anti-trust Act.

If the Anti-trust Act is applicable to the entire situation

here presented and is adequate to afford complete relief

for the evils which the United States insists that situation

presents it can only be because that law will be given a

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176 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

more comprehensive application than has been affixed

to it in any previous decision. This will be the case be-

cause the undisputed facts as we have stated them in-

volve questions as to the operation of the Anti-trust Act

not hitherto presented in any case. Thus, even if the

ownership of stock by the American Tobacco Company

in the accessory and subsidiary companies and the owner-

ship of stock in any of those companies among themselves

were held, as was decided in United States v. Standard Oil

Co., to be a violation of the act and all relations result-

ing from such stock ownership were therefore set aside,

the question would yet remain whether the principal de-

fendant, the American Tobacco Company, and the five

accessory defendants, even when divested of their stock

ownership in other corporations, by virtue of the power

which they would continue to possess, even although thus

stripped, would amount to a violation of both the first

and second sections of the act. Again, if it were held that

the corporations, the existence whereof was due to a com-

bination between such companies and other companies

was a Violation of the act, the question would remain

whether such of the companies as did not owe their exist-

ence and power to combinations but whose power alone

arose from the exercise of the right to acquire and own

property would be amenable to the prohibitions of the act.

Yet further: Even if this proposition was held in the

affirmative the question would remain whether the princi-

pal defendant, the American Tobacco Company, when

stripped of its stock ownership, would be in and of itself

within the prohibitions of the act although that company

was organized and took being before the Anti-trust Act

was passed. Still further, the question would yet remain

whether particular corporations which, when bereft of

the power which they possessed as resulting from stock

ownership, although they were not inherently possessed

of a sufficient residuum of power to cause them to be in

COSA DRE RN PRIA EAS RE I Ht EER NTR TER DE PRR NURS ER

UNITED STATES v. AMERICAN TOBACCO CO. 177

221 U.S. Opinion of the Court.

and of themselves either a restraint of trade or a monopo-

lization or an attempt to monopolize, should nevertheless

be restrained because of their intimate connection and as-

sociation with other corporations found to be within the

prohibitions of the act. The necessity of relief as to all

these aspects, we think, seemed to the Government so es-

sential, and the difficulty of giving to the act such a com-

prehensive and coherent construction as would be adequate

to enable it to meet the entire situation, led to what appears

to us to be in their essence a resort to methods of construc-

tion not compatible one with the other. And the same ap-

parent conflict is presented by the views of the act taken

by the defendants when their contentions are accurately

tested. Thus the Government, for the purpose of fixing the

illegal character of the original combination which organ-

ized the old American Tobacco Company, asserts that the

illegal character of the combination is plainly shown be-

cause the combination was brought about to stay the prog-

ress of a flagrant and ruinous trade war. In other words,

the contention is that as the act forbids every contract,

and combination, it hence prohibits a reasonable and just

agreement made for the purpose of ending a trade war.

But as thus construing the act by the rule of the letter

which kills, would necessarily operate to take out of the

reach of the act some one of the accessory and many sub-

sidiary corporations, the existence of which depend not

at all upon combination or agreement or contract, but upon

mere purchases of property, it is insisted in many forms

of argument that the rule of construction to be applied

must be the spirit and intent of the act and therefore its

prohibitions must be held to extend to acts even if not

within the literal terms of the statute if they arc within

its spirit because done with an intent to bring about the

harmful results which it was the purpose of the statute

to prohibit. So as to the defendants. While it is argued

on the one hand that the forms by which various properties

VOL, Cccxx1—12

«WA SERRA ie OS

178 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

were acquired in view of the letter of the act exclude many

of the assailed transactions from condemnation, it is yet

urged that giving to the act the broad construction which

it should rightfully receive, whatever may be the form,

no condemnation should follow, because, looking at the

case as a whole, every act assailed is shown to have been

but a legitimate and lawful result of the exertion of honest

business methods brought into play for the purpose of

advancing trade instead of with the object of obstructing

and restraining the same. But the difficulties which

arise, from the complexity of the particular dealings which

are here involved and the situation which they produce,

we think grows out of a plain misconception of both the

letter and spirit of the Anti-trust Act. We say of the

letter, because while seeking by a narrow rule of the letter

to include things which it is deemed would otherwise be

excluded, the contention really destroys the great purpose

of the act, since it renders it impossible to apply the law

to a multitude of wrongful acts, which would come within

the scope of its remedial purposes by resort to a reasonable

construction, although they would not be within its reach

by a too narrow and unreasonable adherence to the strict

letter. This must be the case unless it be possible in

reason to say that for the purpose of including one class

of acts which would not otherwise be embraced a literal

construction although in conflict with reason must be

applied and for the purpose of including other acts which

would not otherwise be embraced a reasonable construction

must be resorted to. That is to say two conflicting rules

of construction must at one and the same time be applied

and adhered to.

The obscurity and resulting uncertainty however, is

now but an abstraction because it has been removed by the

consideration which we have given quite recently to the

construction of the Anti-trust Act in the Standard Oil

Case. In that case it was held, without departing from

UNITED STATES v. AMERICAN TOBACCO CO. 179

221U. S. Opinion of the Court.

any previous decision of the court that as the statute had

not defined the words restraint of trade, it became neces-

sary to construe those words, a duty which could only be

discharged by a resort to reason. We say the doctrine

thus stated was in accord with all the previous decisions

of this court, despite the fact that the contrary view was

sometimes erroneously attributed to some of the expres-

sions used in two prior decisions (the Trans-Missouri

Freight Association and Joint Traffic cases, 166 U. 8. 290,

and 171 U. S. 505). That such view was a mistaken one

was fully pointed out in the Standard Oil Case and is ad-

ditionally shown by a passage in the opinion in the Joint

Traffic Case as follows (171 U. S. 568): “The act of Con-

gress must have a reasonable construction, or else there

would scarcely be an agreement or contract among

business men that could not be said to have, indirectly

or remotely, some bearing on interstate commerce, and

possibly to restrain it.”” 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 adop-

tion of the Anti-trust Act only embraced acts or contracts

or agreements or combinations which operated to the

prejudice of the public interests by unduly restricting com-

petition 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, ete., in-

juriously restrained trade, that the words as used in the

statute were designed to have and did have but a like

significance. It was therefore pointed out that the stat-

ute did not forbid or restrain the power to make normal

and usual contracts to further trade by resorting to all

normal methods, whether by agreement or otherwise, to

accomplish such purpose. In other words, it was held,

not that acts which the statute prohibited could be re-

moved from the control of its prohibitions by a finding

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180 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

that they were reasonable, but that the duty to interpret

which inevitably arose from the general character of the

term restraint of trade required that the words restraint

of trade should be given a meaning which would not de-

stroy the individual right to contract and render difficult

if not impossible any movement of trade in the channels

of interstate commerce—the free movement of which it

was the purpose of the statute to protect. The soundness

of the rule that the statute should receive a reasonable

construction, after further mature deliberation, we see

no reason to doubt. Indeed, the necessity for not de-

parting in this case from the standard of the rule of reason

which is universal in its application is so plainly required

in order to give effect to the remedial purposes which the

act under consideration contemplates, and to prevent that

act from destroying all liberty of contract and all sub-

stantial right to trade, and thus causing the act to be at

war with itself by annihilating the fundamental right of

freedom to trade which, on the very face of the act, it was

enacted to preserve, is illustrated by the record before us.

In truth, the plain demonstration which this record gives

of the injury which would arise from and the promotion

of the wrongs which the statute was intended to guard

against which would result from giving to the statute a

narrow, unreasoning and unheard of construction, as

illustrated by the record before us, if possible serves to

strengthen our conviction as to the correctness of the rule

of construction, the rule of reason, which was applied in

the Standard Oil Case, the application of which rule to the

statute we now, in the most unequivocal terms, reéxpress

and re-affirm.

Coming then to apply to the case before us the act as

interpreted in the Standard Oil and previous cases, all

the difficulties suggested by the mere form in which the

assailed transactions are clothed become of no moment.

This follows because although it was held in the Standard

ios. era

UNITED STATES v. AMERICAN TOBACCO CO. 181

221 U.S. Opinion of the Court.

Oil Case that, giving to the statute a reasonable construc-

tion, the words ‘‘restraint of trade” did not embrace ali

those normal and usual contracts essential to individual

freedom and the right to make which were necessary in

order that the course of trade might be free, yet, as a result

of the reasonable construction which was affixed to the

statute, it was pointed out that the generic designation

of the first and second sections of the law, when taken

together, embraced every conceivable act which could

possibly come within the spirit or purpose of the pro-

hibitions of the law, without regard to the garb in which

such acts were clothed. That is to say, it was held that

in view of the general language of the statute and the pub-

lie policy which it manifested, there was no possibility

of frustrating that policy by resorting to any disguise

or subterfuge of form, since resort to reason rendered it

impossible to escape by any indirection the prohibitions

of the statute.

Considering then the undisputed facts which we have

previously stated, it remains only to determine whether

they establish that the acts, contracts, agreements, com-

binations, ete., which were assailed were of such an un-

usual and wrongful character as to bring them within the

prohibitions of the law. That they were, in our opinion,

so overwhelmingly results from the undisputed facts that

it seems only necessary to refer to the facts as we have

stated them to demonstrate the correctness of this con-

clusion. Indeed, the history of the combination is so

replete with the doing of acts which it was the obvious

purpose of the statute to forbid, so demonstrative of the

existence from the beginning of a purpose to acquire

dominion and control of the tobacco trade, not by the mere

exertion of the ordinary right to contract and to trade,

but by methods devised in order to monopolize the trade

by driving competitors out of business, which were ruth-

lessly carried out upon the assumption that to work upon

eae aE ar :

182 OCTOBER TERM, 1910.

Opinion of the Court. 221 U.S.

the fears or play upon the cupidity of competitors would

make success possible. We say these conclusions are in-

evitable, not because of the vast amount of property aggre-

gated by the combination, not because alone of the many

corporations which the proof shows were united by resort

to one device or another. Again, not alone because of the

dominion and control over the tobacco trade which actu-

ally exists, but because we think the conclusion of wrongful

purpose and illegal combination is overwhelmingly es-

tablished by the following considerations: a. By the fact

that the very first organization or combination was im-

pelled by a previously existing fierce trade war, evidently

inspired by one or more of the minds which

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