# Opinion — United States v. American Tobacco Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_0264%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Opinion - **Published:** January 1, 1911 - **Citation:** 221 U.S. 106 ## Text 3 ‘ ¥ 3 4 < . : “a Xba remnme°¢hnornrne ria rTtrt Bf 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 aR 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 a 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 FeO PY ELLE IIE IME BEI PRO we ati ne lee 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 a ee ee eC e RY, Te a ea ER WARDATS AIC ft a a Pe i ee ee ee , - ye 7 ; — 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 Fy PRE HELE RE IN a SPRRISP PIR ENC CADENA i uetig Amer a ED a AE AAE ENE LIL FOL LOT IEF Soin eS EN SES PE OWe ToMe Pat re al et Nem ate ee 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, RR IA SRA PER ITEM @ A Alan eT kc ae aE (ig Lan een one 7 122 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 4 ba RY PRE rare MCSE Sy IT Birr: a3 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- PS SN A DRE RN ORES EEE RES NTS an gs kaserreta dc isms BPschencs. DRS v0 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 BAG at ai hae SiR aa vat Do aoe ar ee i ie es LE a a 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 o 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- 5 3 % &: e; 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 5 a= ‘ 4 : * & % é e G 2 BY € iF Fs TRAP IPRS ey ara as RENT, ALI PIII OO LY : we a 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 5 a 4 “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 Peers PIER STI HNO eT EE a ee ee ORES ela 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 Ee FOP Pes RO PE Fl LMS. PIERSON i sce ata ARSE LO: ‘asada ccd 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 & % sf i ‘ br & & ARIA ECM SE Ie she Pe aR eR arp SRNR ee ee a Ue AR te Sn ie GRD AI NES 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 a. 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 ME Anis oe es, ath oad gic-gis 40. © Ul Meicaats 16,968,870 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 cA RS or 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 aby i NRE 2 Ps Shae Pink La ESE BILD 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, [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_0264%3A1. Public record. Not legal advice.