Lorillard
The United States of America, Appellant, V. The American Tobacco Company and Others. The American Tobacco Company and Others, Appellants, V. The United States of America. Oral Argument of Delancey Nicoll (P. 1), John G. Johnson ( P. 87), Junius Parker (P. 105), for the American Tobacco Company and Others, and of Sol M. Stroock (P. 131), for United Cigar Stores Company. No. 118 (Formerly 316). No. 119 (Formerly 317).
Fields
- Author
- Coxe
- Harlan
- Hillman
- Hoar
- Holmes
- Hughes
- Johnson, J.G.
- Lamar
- Lurton
- Mckenna
- Nicoll, D.
- Parker
- Parker, J.
- Stroock, S.M.
- Vandevanter
- Whelan, G.J.
- Wickersham
- Harlan
- Type
- PLEA, PLEADING
- Area
- LEGAL DEPT FILES/BASEMENT GMP
- Recipient (Organization)
- US Supreme Court
- Named Person
- Bendheim
- Bloch
- Brewster
- Butler, G.P.
- Carnegie
- Choate
- Clark
- Condon
- Conley, J.
- Coxe
- Craft
- Deiches
- Devoe
- Duke
- Dula
- Dunkerson
- Eckstein, N.
- Edmunds
- Fowler, A.
- Friedlander
- Furst
- Harrington
- Helme
- Hill
- Hillman
- Hoar
- Holmes
- Hornblower
- Hughes
- Jenkins
- Johnson
- Johnson, J.G.
- Jungbluth
- Knight
- Lacombe
- Lane
- Larus
- Lee
- Letts
- Mahn, G.
- Mathews
- Mckenna
- Mcreynolds
- Moore
- Nicoll, D.
- Noyes
- Parker, J.
- Pearson
- Peckham
- Peper
- Puryear
- Ray
- Richardson
- Rockefeller
- Savage
- Schulte
- Scotten, D.
- Shawnee
- Sheppey
- Sherman
- Stewart
- Stone, H.M.
- Strater
- Stroock, S.M.
- Swift
- Taft
- Ward
- Wetmore, M.C.
- Whelan, G.J.
- Wilson
- Young
- Bloch
- Named Organization
- Addyston Pipe + Foundry
- Allen Ginter
- Amer, American Tobacco
- American Cigar
- American Snuff
- American Stogie
- Anargyros
- Atlantic Snuff
- Bat, British American Tobacco
- Blackwells Durham
- Bloch Brothers
- Board of Directors
- Brown
- Bureau of Corporations
- Burley Tobacco Assn
- Burley Tobacco Society
- Butler Butler
- Byfield Snuff
- Columbia
- Congress
- Conley
- Consolidated Cigarette
- Continental Tobacco
- Continental Wall Paper
- Craft Tobacco
- Danbury Hat
- Daniel Scotten
- Dept of Commerce + Labor
- Drummond
- Errors + Appeals Court
- Gail + Ax
- Globe Tobacco
- Golden Belt Mfg
- Goodwin
- Hall
- Herman Ellis
- Hernsheim
- Imperial Tobacco
- J Wright
- Johnson Tinfoil
- Joint Traffic
- Kinney Tobacco
- Larus
- Lehmaier Schwartz
- Lewis
- Licorice
- Lm, Liggett & Myers
- Mcandrews Forbes
- Meller Rittenhouse
- Mengel Box
- Metropolitan Tobacco
- Nall Williams
- Nashville Tobacco Works
- Natl Tobacco Works
- Northern Securities
- Ogdens
- Peoples Tobacco
- Pharmaceutical Works
- Pinkerton
- Pinkerton Tobacco
- Powell Smith
- Ray + Hughes
- Regie
- Rp Richardson
- Schinasi Brothers
- Scotten Dillon Tobacco
- Spaulding Merrick
- Standard Snuff
- Trans Mo
- United Cigar Stores
- Universal Tobacco
- US Circuit Court Sd Ny
- US Supreme Court
- US Tobacco
- Usda, U.S. Dept of Agriculture
- W Duke + Sons
- Weaver Sterry
- Wetmore Tobacco
- Weymans
- Whitlocks
- Ws Kimball
- Young
- Allen Ginter
- Document File
- 88684790/88685554/American Tobacco Company
- Date Loaded
- 14 Sep 2001
- Litigation
- Feda/Produced
- Author (Organization)
- Amer, American Tobacco
- United Cigar Stores
- Characteristic
- MARG, MARGINALIA
- Request
- R1-270
- Site
- G29
- Brand
- Anargyros
- UCSF Legacy ID
- ozj64a00
Document Images
3
ness and that their great success is a natural
growth resulting from industry, intelligence
and economy."
We come before this Court, therefore, acquitted
of the very charges which the Assistant Attorney-
General now repeats. We stand before your
Honors with clean hands.
Another extraordinary fact about this Record
which differentiates it from many cases is that
these defendants have no control whatever over
the. supply of the. raw material. They own no
tobacco lands in the United States. There are un-
limited lands upon which tobacco may be grown in
addition to the land upon which it is grown at pres-
ent. In fact, tobacco grows all over the world, and
the United States does not produce much more than
a third of the annual crop. This circumstance puts
these defendants in a very different position from
those'indnstries which include in their assets such
natural resources as coal or iron or oil or lumber or
copper or other minerala
Not only that; but the defendants have never
purchased, in any one year, half of the tobacco crop
of the United States. Exhibit No. 76 of the Record
shows the total production of tobacco leaf and the
amount used by the defendants, as compared with
the total production in the years 1903, 1904 and
1905.
The Chief Justice: Mr. Nicoll, may I interrupt
you just a moment? Your argument is following
the line of your brief, is it not?
Mr. Nicoll: Somewhat; not here, however-not
on this point.
The Chief Justice: I wanted to take some memo-
randa if it was not. That is why I asked.
Mr. Nicoll: Not here; but of course a great many
of these facts are to be found in the brief.
The Chief Justice: Yes.
.r
rr
Mr. Nicoll: These facts that I am stating now
will be found in the briefs, your Honor.
The Chief Justice: I beg pardon. Go on.
Mr. Nicoll: Also a discussion of some difference
which has arisen between the Attorney-General
and ourselves as to these facts. I am quoting them
from the record, and I am quoting them from
Exhibit No. 76.
This exhibit shows that in 1903 the total crop was
998,000,000 pounds. The total purchased by the
defendants was 391,000,000 pounds. In 1904 the
total crop was 842,000,000 pounds. The total pur-
chased by the defendants was 329,000,000 pounds.
In 1905 the total crop was 921,000,000 pounds. The
total purchased by the defendants was 418,000,000
pounds. And we agreed that the crop of 1906 would
show substantially the same proportions.
There is still another great fact: The defendants
have never produced half of the manufactured out-
put of tobacco. Measured in dollars and cents, the
annual output of manufactured tobacco is f565;
000,000. The defendants produce $212,000,000, or
something less than thirty-eight per cent. of the
annual crop. Of course in making this statement
I am treating the tobacco business as a whole, in-
cluding cigars.
There is another extraordinary fact about this
record which differentiates it from many other
cases: There is no charge here of rebating, or that
the defendants owe their growth or prosperity to
any advantage over their competitors in transporta-
tion. This fact is generally relied upon in Govern-
ment prosecutions as an evidence of an intention to
monopolize; and the charge is often made that many,
of the great industrial corporations of the IInited,,
States have flourished by it, if, indeed; their pros- :
perity has not actually been built up upon it. <8ut
however that may be in other instances, I take some
satisfaction in saying to your Honors that the de-
v
Oral Argument of De Lancey Nioo11,
Esq., Jannary 9, 1911.
Mr. Nicoll: If your Honors please:
Before I proceed to discuss the evidence from the
viewpoint of the defendants, I will call your atten-
tion to certain paramount considerations in this
Record which I believe will go far to dispel any un-
favorable impressions which may have been made
by the argument of the learned Assistant Attorney-
General.
Paramount Considerations.
The petition in this case gives a history of the
life of the defendants from the beginning, and al-
most their every act is brought into question. It
was prepared upon the theory that the existence
of the American Tobacco Company, and the other
defendants, is prejudicial to the producers of to-
bacco, to the manufacturers of tobacco, and to the
consumers of tobacco.
The case below was tried at great length. The
Court listened to argument for four whole days.
For two whole days the learned Assistant Attor-
ney-General, with that eloquence and ingenuity
which characterize all his addresses, endeavored to
persuade the Court that many, if not all, of our acts
were oppressive, coercive and generally injurious.
What was the result of that discussion? It has
not appeared thus far in the argument; but the
fact is that the Court below acquitted us of all the
methods of which the Attorney-General now ac-
cnses us.
Judge Lacombe eaid:
"The record in this case does not indic~
that there has been any increase in the prfce
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6
hinder, restrain and monopolize interstate and
foreign trade and commerce in leaf tobacco and
articles fabricated therefrom or necessary therein.
They have already driven out most opponents, and
have attained such power in combination that the
few established competitors must conduct. their
business in the well-grounded fear of swift destruc-
tion."
What proof was there to.sustain this charge?
This proceeding certainly offered an opportunity
to alI men in the United States who had been
coerced or dragooned to come forward and tell the
story of their wrongs. If, indeed, these defendants
had coerced others to sell, here was the opportunity
at last to tell the tale. Yet but one witness (Mr.
Puryear, of the. Nashville Tobacco Works) made
any such complaint I will explain that transaction
as I proceed. And no manufacturer was called to
prove that.he conducted his business in fear of swift .
destruction, or in any fear at all on the account of
the defendants.
There is still another paramount fact about this
Record. Notwithstanding the.claim that these de
fendants have restrained trade in tobacco leaf and
in the products manufactured therefrom, from their
organization in 1890 down to the year 1907, it
appears that in that period there has been a great
increase in the number of tobacco factories and in
the number of cigar and cigarette factories. In
1890 the number.of tobacco manufactories in the
United States (by which I mean smoking and plug
tobacco) was 1,021. In 1907 it was 3,600. In other
words, during the period of the birth and growth of
the American Tobacco Company, the tobacco plants
in the United States more than trebled. During the
same period the cigar and cigarette manufacturerY
have increased from 23,000 to 26,000. I am speak-
ing now of the growth of the independents, not the
7
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2
of tobacco products to the consumer. There
is an absence of persuasive evidence: that by
unfair competition or improper practices in-
dependent dealers have been dragooned Into
giving up their individual enterprises and
selling out to the principal defendant . .
"During the existence of the Ameriean
Tobacco Company new enterprises have been
started-some with small capital in competi-
tion with it and have thriven. The price of
leaf tobacco-the raw material-except for
one brief period of abnormal conditions, has
steadily increased until it has nearly doubled,
while at the same time 150,000 additional
acres have been devoted to tobacco crops and
the consumption of the leaf has greatly in-
creased."
Judge Noyes agreed with Judge Lacombe that
this Record is "remarkably free from instances of
coercion and oppression"; and he added:
"It may be that now, in applying the sec-
ond section of the statute, performance, as
well ae power of performance, should be con-
sidered-that the elements of oppression and
coercion should be shown to erist-to estab-
llah an unlawful monopoly. And if these
elements are.to be considered, they are not
suSiciently presented upon this record. It is
not shown that the defendants have reduced
prices to growers, nor that they have raised
prices to consumers. The instances of co-
ercion which are shown appear rather as in-
cidental to the development of a.great busi
ness than as indicative of a policy of oppres-
sion."
Judge Ward, who wrote the dissenting opinion
in the Court below, agreed with his brethren upon
this subject, and said:
"A perusal of the record satisfied me that
their purposes and conduct were not illegal
or oppressive, but that they strove, as every
business man strives, to increase their busi
fendants in this case have never enjoyed any such
advantage over their competitors.
There ie still another fact of peculiar importance.
The charge in this petition is that these defendants
have combined and conspired to injure the pro-
ducers of tobacco. And yet the fact is that not a
single producer of tobacco in the United States is
here to complain. There are at least half a million
men in the United States engaged in growing
tobacco, and yet there is not one of them who is a
complainant before this Court.
Another charge is that these defendants have com-
bined and conspired to injure the manufacturers
of tobacco. But not a single independent manu-
facturer was called by the Government to sustain
that charge. The only independent manufacturers
in this case who were called were called by the de
fendanta They were called by us to prove the fair
ness and justice of our methoda We calledd the
largeatindependent manufacturer of plug tobacco,
the largest independent manufacturer of scrap
tobacco, the largest independent cigarette manu-
facturer; and all of them agreed that the methods
of the defendants bad been fair and just, and the
avenues of distribution kept free and open.
The charge is also made in the petition that these
defendants have combined and conspired to injure
the consumers of tobacco in the United States. Yet
out of the millions and millions of men who use
tobacco products in the United Btates, no one came
to complain.
But that is not all. The dsstatant Attorney-
General has told yon 'of the freqnent purchases
made of plants and brands from competitora And
he made to-day the very general charge that these
vendors had been coerced to eell. The charge in
the petition is this:
'^Phe defendants have driven out opponenta, de-
terred others from entering, and now unreaeonably
N
growth of any factories controlled by the American
Tobacco Company. And in this connection I ought
to call your Honors' attention to another fact which
appears in the Record; and that Is that in certain
branches of the tobacco business our percentage
haa constantly decreased instead of increasing. If
the theory of the Government is true that we
possess such enormous power over the trade, why
should not our percentage have increased from year
to year?
Yet what are the facts? We started, it is true,
in 1890 in the cigarette business with ninety-eeven
per cent. The very next year it fell to eighty-nine
per cent It has been constantly falling ever since,
until in the year 1907 it reached seventy-three per
cent., or twenty-four per cent. less than when we
started.
Mr. Justice Hnghee: What was the difference in
the total consumption of cigarettes during that
time?
Mr. Nicoll : Say about a billion more a year, Mr.
Parker telle me. Now, as to cigara: We startsd the
cigar business in 1902 with a percentage of a3zteen
per cent. That fell by 1907 to fourteen per cent.
I have brought forward these various considera-
tions in advance of a more detailed diacnesion of
the evidence, in order to show your Honors that
after all the Record in this case has not the daak
and eomber colors in which the learned Aasiatant
Attorney-Qeneral has endeavored to paint it.
I will now proceed with an account of the birth
and growth of the American Tobacco Company.
Here our contention with the Government begina.
Goaexnment cbasges.
The Government charges that the main purpose
and Intention of the defendants from the beginning
was to restrain trade by suppressing competition;
en-
11
able and successful to-day may not be profitable
and saccessfal to-morrow. They had issued seenri-
ties of ;23,000,000--410,000,000 of preferred and
$15,000,000 of common stock; and in order
to broaden the basis upon which the securities
were issued, and to give permanent value to
them, they proceeded to purchase some plants in
other lines of business. The Government here sees
our next offense after our iniquitous organization.
Yet it seems to me to have been the most eminently
conservative and reasonable thing that they could
have dpne. Indeed, it wae more than conservative;
it was necessary if the American Tobacco Company
was to continue in business; for just what they ea-
pected to happen did happen. Popular taste did
change, and In a very short time the business of
matzng Virginia cigarettes became comparatively
ineignificant compared with its size when the
American Tobacco Company was organized.
Let us see what they did. They bought a plug
concern, the National Tobacco Works, at Lonis-
ville; the smoking business of Marburg in Balti-
more; the smoking and snuff business of Gail & Ax,
in Baltimore; Wldtiock's bnsiness in cheroots; from
Hernaheim, of New Orleans, a machine for mamng
cigarettes without paste; and on account of the
prejudice which had arisen against paper cigar-
ettes, they bought three concerns in Baltimore
which were making all-tobacco cigarettes, viz.: Her
man Ellis, Hall, and the Consolidated Cigarette
Company.
Mr. Justice Holmes: Is that what is meant by
"Little Cigars?"
Mr. Nicoll: Yes, that is what is meant by "Little
Clgam
None of these concerns was In competition with
the American Tobacco Company at a1L The,y were
In different lines of business. Each was bought for
cash, although In two instances they gave cash and
sumer; and no increaste in price wae made. There
was no purpose to diminish the price of tobacco leaf
to the farmer. That increased on account of the
expansion of the busineee. The sole purpose was
to increase the business by having a more complete
organization for managing it and to effect econo-
mfes in conducting it; because the expenses of ad-
vertising had increased to an enormous extent,
amounting in the case of W. Duke & Sons to as
much as 4800,000 a year, or nearly twenty per cent.
of the whole business. The advertising expenses
of the others were equally large. These concerns
were wound up, and their plants and businesses
taken over by the American Tobacco Company; and
the business was carried on by the new organization
in the same factories, except where it was found
more economical or convenient to manufacture at
some other point. Then the factories were sold,
but the manufacture of the brand was continued.
The New Jersey corporation received the actual
properties, with their live assets and good will, and
paid for them in its stock.
The Assistant Attorney-General in the course of
his remarks commented upon the fact that, accord-
Ing to an estimate made by the Bureau of Corpo-
rations of the Department of Commerce and IAbor
in the year 1908, two years after the trial of this
case was over (see Reply Brief, p. 10), the
value of the.tangible assets of the factories and
the plants and the stock on hand and bills receiv-
able that went over to the New Jersey corpora-
tion was only #3,500,000. And he makes the
charge that here was an instance of gross over-
capitalization. But, of course, he ignores in that
statement what is the only thing of real value in
the tobacco business, and that Is the brands. The
brand of 'Bull Darham,°f of which your Honors
will bear as I proceed, was one sold at auction for
#4,000,000-one brand of tobacco alone.
27
manent supply of licorice paste at a reasonable
price. The Continental Tobacco Company there-
upon bought in Philadelphia a concern called
Meller & Rittenhouse, and enlarged its factory,
keeping the matter secret from rival manufaturers
of licorice paste for fear they would refuse to
sell it. That brought about a consolidation be-
tween Meller & Rittenhouse and the McAndrews &
Forbes Company, which was the oldest concern
engaged in the manufacture of licorice paste in the
United States. It had been in business for many
years, and made the most popular paste in the
market. The officials of the American and Conti-
nental Companies made up their minds that if
they could unite that concern with their own, they
would then have what they deemed necessary for
their business-a permanent supply of licorice
paste at a reasonable price.
8oon after this the president of the Continental
Company became convinced of the necessity of hav-
ing always on hand a two-years' supply of licorice
root-not licorice paste, but the root from which
the paste is made. This licorice root grows in
Russia, in Syria and in other parts of Asia, and
the gathering of it is attended with great difficulty.
It grows wild, and its collection is interrupted by
the disturbances which are constantly occurring in
those countries. These became aggravated at the
time of the Japanese-Russian War, and the fear was
entertained that a two years' supply of licorice
root could not be secured except at a prohibitive
price. It was therefore decided to acquire an in-
terest in the Young Company, a concern manufac-
turing licorice paste at Baltimore, and to enter into
a trade contract with Lewis, another concern man-
ufacturing licorice paste at Providence, in Rhode
Island. The object in making these contracts was
not to control the supply of licorice paste, but to
prevent Young and Lewis from interfering with
12
a little stock; and they took from the vendors deeds
of the property which they bought. If it was a cor-
poration, they did not buy the stock and issue their
stock in exchange; they bought the actual property
and paid for it in cash, having no other purpose in
view than the purpose which I have just stated-of
broadening the basis upon which the business was
organized, and of giving permanence and value to
their securities.
Continental Tobacco Company.
What was the next step? We have not reached
the year 1895, or six years after the organization
of the American Tobacco Company. By that time
it bad become quite a prosperous concern. It had
its cigarette business, with which it started; it had
its old smoking business and a little more; it had
some plug business; it had the business of little
cigars which it had acquired from the Baltimore
houses ; and it was going on making money when its
success attracted the attention of the powerful plug
manufacturers of the United States. They at once
commenced to make war upon it. The Drummond
Company in St. Louis proceeded to sell at a reduced
price one of its brands in the City of Philadelphia
in competition with a brand of the American To-
bacco Company. Naturally the American Tobacco
Company retaliated; and that brought on what is
known in this Record as the "Plug" or "Battle-ax
War."
My learned friend on the other side would have
you believe that this was begun by the American
Tobacco Company for the purpose of bringing into
submission the great plug manufacturers. But that
is not the fact. If there is one thing that is clearly
shown by this Record, it is that that, war was forced
upon us. It was not of our seeking. Of course, we
were anxious to end it. He quotes a resolutionof
68685331
A
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16
the men who pnt up the $40,000,000 pledged their
money as security for the payment of the bonds and
the interest upon them.
Merger in x9oq.
8o we have the Consolidated Tobacco Company
formed in 1901. That was not a company conduct-
ing a manufacturing business. It held the common
stocks of the American Tobacco Company and the
Continental Tobacco Company. But, as I have just
pointed out, they were not competing concerns.
One was doing a plug business, and the other a
smoking and cigarette business. That went on until
1904, when it was determined to form a new cor-
poration on account of the confusion which existed
about the securities upon the exchange, and in order
to effect some additional economies in the business.
At this time this waathe condition of the securities:
The American Tobacco Company had out its pre-
ferred stock and a small remnant of its common
stock. The Continental Tobacco Company had out
its preferred stock and a small remnant of its com-
mon stock. The Consolidated Tobacco Company
had out $150,000,000 of these four per cent. bonds
which it had issued for the purpose of purchasing
these common stocks. The Consolidated Tobacco
Company had also its common stock. And In order
to be rid of that confusion about the securities, it
was agreed to merge these three companies-the
Consolidated, the Continental, and the American-
into a new company, called the American Tobacco
Company, under the laws of the State ofq New
Jersey.
An equitable distribution of the securities was
arranged. The preferred stockholders of the
American and of the Continental Companies got
the. first lien upon the property, vlz.: The bonda
The bondholders of the Consolidated Company had.
their choice: They were either to receive bonds in
88685335
I~y
3i3
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8
and that that is shown by the circumstances of our
several consolidations and incorporations, by our
frequent acquisitions, by the covenants taken from
venders to refrain from trade, by our methods of
leaf-buying, by our stock-holding in other com-
panies, and by our methods of competition.
We reply that the story of the birth and growth
of the American Tobacco Company is the story of
the natural, orderly, legal and logical evolution of
what has gradually become a great business; that
our constant purpose was to foster and increase our
trade; that we had no other purpose or intention;
and that if by our acquisitions competition was
lessened, that was incidental to the main and par-
amount object which we always had in view.
American Tobacco Company.
The date with which we start is the latter part
of the year 1889, or the. beginning of the year 1890.
At that time there were five concerns engaged in
the manufacture of cigarettes from Virginia to-
bacco-W. Duke Sons & Company, at Durham,
North Carolina, a corporation; Allen &. Ginter, at
Richmond, a corporation; the Kinney Tobacco
Company at New York, a corporation; Goodwin &
Company, in Brooklyn, a partnership; and W. 6.
Kimball & Company, in Rochester, a partnership.
The business of making Virginia cigarettes was at
that time a comparatively new industry. It had
been going on for only a few years; and the in-
dividuals controlling these three corporations and
two partnerships agreed to form a corporation un-
der the laws of the State of New York, and to con-
vey to it their respective properties by actual deeds,
taking in exchange the shares of the New Jersey
corporation in agreed proportions.
There was no purpose in this consolidation to fn-
creaae the price of tobacco products to the con-
c
tt
bi
w
46
19
cerna in the United 8tatee. But no such thing as
that is shown by this Record. The Snuff Company
is another instance of a sale by the American
Tobacco Company, and not a purchase. It came
about in this way:
I have already told your Honore that in 1891 we
bought in Baltimore a smoking and snuff business
conducted by Gail & Az We did not buy the snuff
business because we wanted the snuff business, but
because we wanted the smoking tobacco buaineea
But, ae very often happens in these factorlea, the
smoking tobacco business had associated with it a
little ennff buaineaa And in that way we came Into
poaeession of a small amount of snuff business.
Again, at its organization in 1898 the Conti-
nental Tobacco Company had acquired the Lorii-
lard business, which had quite a large snuff bna[-
neee. But neither the American Tobacco Company
nor the Continental Tobacco Company had any
snuff organization. The snuff business Is an en-
tirely different business from the tobacco business
-that ia, the smoking business or the plug bnsinees.
Snuff is made out of different materials. It fe
manufactured by different processes. It Is aold on
different nelling plane, and it goes to an entirely
different class of eonaamere. In order to conduct it
properly, it requires a separate organization; and
we had none.
That was the situation in the year 1900. About
a year and a half or two years before that, certain
snuff manufacturers entirely independent of us had
organized the Atlantic Snuff Company. They had
acquired the business of several large snuff con-
cerns, but they did not acquire the business of the
American Tobacco Company nor of the Lorillatd
Company. They went on with their snuff business
for a while until 190Q. Then, only in order that we
might have some effective organization for the
management of our snuff business, we co-operated
These are the little packages in which smoking
tobacco is packed. That concern-the Golden Belt
Manufacturing Company-sells to us the greater
part of its product, but it also sells to independent
manufacturers at the same price. The same is
true of the Mengel Box Company-the Company
which makes the boxes in which the tobacco comes;
and the same is true of the Licorice Company, and
all of these articles, the cotton containers, boxes
and licorice are sold by. us to independent manu-
facturers, who can also if they choose, procure the
same articles through others.
McAndrews & Forbes-The Licorice Company.
8o much was said about the Licorice. Company-
the McAndrews & Forbes Company-and so much
was sought to be made of the fact that some years
ago the Government undertook a prosecution of
the Licorice Company and its officers that I de-
sire to say a few words upon that subject
During the first five months of the year 1906
the grand jury of the Circuit Court of the United
States for the Southern District of New York made
an eahaustive examination of the American To-
bacco Company and its subsidiary companies. All
of their transactions were minutely investigated,
but the only one which was made the subject of a
charge was the one which I am about to discuss.
Licorice paste is a necessary ingredient in the
manufacture of plug tobacco. When the Con-
tinental Tobacco Company in the year 1899 ac-
quired the Liggett & Meyers Company, in St.
Louis, they found that the Liggett & Meyers Com-
pany were manufacturing their own licorice paste
a greater cost than the price of the licorice paste to
the Continental Tobacco Company: This convinced
the president of the Continental Tobacco Company
that the profit to manufacturers of licorice was
inadequate and of the necessity of securing a per-
our Board of Directors iuetrncting the officers of
the Company to endeavor to end It. Undoubtedly
we were anxious to end it, for the loeses were piling
up. No business transaction of that sort can be
conducted without loss. And so we made an air
tempt to end it; but that failed, and the war went
on from the year 1895 to the year 1898, when two
gentlemen named Ray and Hnghee, who were pro-
motere, having obtained options upon some of these
plug concerns in the Middle West, came to us and
offered to sell them to us. We declined to buy.
That put the matter over for some time, when these
same gentlemen, Ray and Hughes, undertook to
organize a plug concern, and came to us and asked
us to sell our plug business to their concern. We
agreed to do it-to take V0,000,000 of stock out of
a total capitalization of $76,000,000; in other worde,
to sell our business for leee than a third of the total
capital etoch. That plan failed. Nothing was done.
In the meanwhile we bought the Drummond Com-
pany from the heirs of ite founder; we bought the
Brown Company, another one of these plug con-
cerna, because of the unusual success and popu-
larity of its brand; and then when Ray and Hughes
renewed their propoeaYa we actually did sell our
plug basiness to the Continental Tobacco Company
for a little over a third, but lese than a half, of its
capital stock.
We are accused by the Government of having
made repeated purchases; and yet the first great
transaction that we come across in this history is a
eale, and not a parcbaee, of some of our business.
We sold onr ping business to a company in which
we had a minority interest; and we never did Lave
control or anything more than a minority interest
In the stock of the Continental Tobacco Company.
Mr. Justice Lurton: Did you sell for cash or for
stock7
m
~
m
tn
W
CJ
N
I
Mr. Nicoll :`S'e sold for stock.
Mr. Justice Lurt,on: For what proportion of the
whole stock?
Mr. Nicoll: I say, we received $30,000,000 out of
478,000,000.
Mr. Justice Van Devanter: Did those proportions
continue?
Mr. Nicoll: No; the capital of the Continental
Tobacco Company was afterwards increased to
$100,000,000, but we still held $30,000,000 or $37,-
000,000. I will come along presently to the account
of the merger.
A great deal is made out of the fact that Mr.
Duke became the President of the Continental To-
bacco Company. But that was not in the contem-
plation of the parties when the company was or-
ganized; and he became president only on account
of the disputes which arose between the other can-
didates.
Here, then, was the Continental Tobacco Com-
pany doing a plug business, and the American To-
bacco Company doing a smoking and a cigarette
business; and they were not competing concerns.
There is no competition between plug on the one
hand and cigarettes and smoking tobacco on the
other. They are made from different kinds of to-
bacco, by, different processes, sold in a different way,
and have"an entirely different class of consnmers.
But naturally the securities of the two companies
drifted into the same hands. Men who had stock in
the American Tobacco Company were naturally at-
tracted toward the shares of the Continental To-
bacco Company; so that in a few years a large
amount of these stocks were found in the same
hands.
That brings us to the year 1899.
In 1899 the American Tobacco Company puz-
chased the Union Tobacco Company, which was a
Mr. Nicoll : That has greatly increased in price.
The Chief Justice: Do I understand you to say
that you are making a statement of fact now?
Mr. Nicoll: Yes.
The Chief Justice: It is very important to get the
facts accurately, and not to gloss them. Do I un-
derstand you to say that this Record establishes that
at the marketing season, the general season when
the producer of tobacco would be expected to market
his crop, that there has been a general increase in
the price of tobacco?
Mr. Nicoll: I certainly do mean to say just that
(see Vol. II, pp. 126, 184; Vol. III, pp. 228-9;
Vol. IV, pp. 266-272, 421, 522).
Mr. Justice Lamar: Have you any table that
shows how that advance compares with the general
advance in prices?
Mr. Nicoll: You will find a table in the Record;
but the Government has furnished your Honors
with a table, Appendix C, to its brief, from the
Year Book of the Department of Agriculture. For
my own part, I do not commend that table to the
Court, because in my reply brief (p. 12 and its
appendix) I show that those figures are not satia
factory at all, but extremely inaccurate; but the
Record itself contains all these facts.
The Chief Justice: I do not want to interrupt
you. I wanted to know the meaning of the terms
you were using. That was all.
Mr. Nicoll: I am glad to be interrupted. I was
just about saying that there has never been a time
in the history of the country when the price of
tobacco leaf has been as high as in the last few
years, and that is shown by the Record. The
Government says that the American Tobacco Com-
pany is not entitled to any credit for this. It is
true that we do not claim that we have trTed to
increase the price of tobacco. All we claim is that
with them to form the American Snuff Company.
They turned over the business of the Atlantic Snuff
Company, and we turned over to the American
Snuff Company our business. They received
47,500,000 worth of the preferred stock.and $2,500;
000 of the common stock. We received $2,500,000
of the common stock and 47,500,000 of the preferred
stock, At the same time the American Snuff Com-
pany purchased the business of Mr. Hehne of Phiia-
delpbia, for 42,000,000 of preferred stock and =1;
000,000 of the common stock.
By this transaction the American Tobacco Com-
pany acquired no control of the Snuff Company; for
the preferred and common shares bad an equal voG
ing power. It has never bad any control of the
Snuff Company. It has never had anything more
than an investment in the Snuff Company of about
forty per cent. The first President of the Snuff
Company was Mr. Hehne, of Philadelphia. He was
succeeded by Mr. Condon. Neither of them was
or had ever been in any way connected with the
American Tobacco Company. It has its own buy-
ing organization, its own selling organization; and
the relation of the American Tobacco Company to
it is nothing more than that of a holder of its secnri-
ties in consideration of a sale of its property.
A great deal is said about the large percentage
which the Snuff Company has acquired of the snuff
trade. How has such a percentage grown up?
It appears that this percentage has come about, not
by acquiring the business of competitors, but on
account of the business which the American Snuff
Company itself haa developed. When it was
formed it did a business of 9,000,000 pounds out of
13,000,000 pounds. It is true it bought some busi-
nesses. It bought De Voe's business; it bought the
Standard Qnuff Company's business; it bought
Weyman's business. But most of those purchases
were insignificant. By those purchases it acquired
new concern organized by a group of financiers who
had acquired a considerable business in smoking
tobacco and cigarettes; one motive being, as stated
by Mr. Duke, to bring about an association with
powerful financial interests who might prove of aid
in the further development of the business.
Consolidated Tobacco Company.
In 1901 the American Tobacco Company decided
to extend its lines by going into the cigar business.
That required additional capital. At the same time
difficulties had arisen about the development of the
trade in foreign countries, particularly in England;
and more capital was necessary for that purpose.
Various plans of raising money were proposed-
either by issuing bonds or by increasing the stock-
but none of them was found to be practicable. Bo
there was formed in 1901 the Consolidated Tobacco
Company, with a cash capital of $30,000,000 (after-
wards increased to {4D,000,000 in cash); and the
Consolidated Tobacco Company then made an offer
to the common stockholders of the American To-
bacco Company and the Continental Tobacco Com-
pany. They offered to buy their eharee with the
four per cent. bonds of the Consolidated Tobacco
Company. They offered the stockholders of the
American Tobacco Company two for one-that is,
$200 in bonds for ;100 in stock. To the share-
holders of the Continental Tobacco Company they
offered;100 in bonds for ¢100 in stock. So that the
shareholder of the American Tobacco Company who
had been getting six per cent., if he accepted this
offer, got eight per cent.; and the shareholder In
the Continental Tobacco Company, who had never
received a dividend, got four per cent
It is not surprising that a very large number of
the stockholders of the Continental and the Amer-
ican Tobacco Companies accepted this offer; while
25
activities to other branches of business besides the
tobacco business. Such is not the fact. All
there is to that matter is this: For the efficient and
economical management of a great business it is
necessary that there should be reliable sources of
supply of those materials which are used in the
manufacture of tobacco, such as tin-foil, boxes, bags,
licorice, sugar and what not. No great manufac-
turing company can afford to depend upon chance
for its supply of such materials. It must have
them always on hand or must cease manufacturing.
Take tin-foil, for instance: A constant supply
of that is necessary for our business. There-
fore, we bought an interest in the business of Mr.
John Conley, leaving him in the management, and
owning a third of the business. Then we acquired
the Johnson Tin-foil Company, so that in case one
factory was destroyed we should have another. The
Conley Company sells the greater part of its tin-foil
to us, but it sells to all the other manufacturers at
the same price. The other manufacturers may buy
their goods of the Conley Company; or, if they do
not, and they so choose, they can buy of Lehmaier,
Schwartz and Company, which is a combination of
independent manufacturers representing the own-
ers of at least four different planta We also ac-
quired an interest in a concern for the manufacture
of bags and small containers, of which we use a
great quantity.
Jannary 10, 1911.
Mr. Nicoll: If your Honors please, when the
Court took an adjournment yesterday I was speak-
ing of the supply companies, and had discussed the
case of the Conley Tin Foil Company, in which the
American Tobacco Company had an interest. We
also acquired an interest in a concern for the manu-
facture of bags and small contafners, of which we
use a great quantity.
45
by buyers, and put up at auction to the highest
bidder. The farmer reserves the right to withdraw
his contribution unless he is satisfied with the
price. In the burley and dark western district.
there is a different method of selling it. There the
tobacco is packed in hogsheads which are brought
to the market. Samples are then taken, and it is
sold at auction by sample. These markets are
called "breaks," a term that your Honors will find
in the Record, which has arisen from the breaking
of the original package.
In later years a practice has grown up of buying
from the farmer direct, but only a small portion of
the tobacco is bought in that way.
Now, I say that practically all of this tobacco is
sold to the highest bidder, and these are the com-
petitors: The first competitor is the American
Tobacco Company; then the companies in which the
American Tobacco Company is interested, but
which have a separate buying organization of their
own, such as the Snuff Company, manufacturing
entirely different kinds of goods from that manu-
factured by the American Tobacco Company. Then
the Cigar Company; the Stogie Company; then the
representatives of foreign governmenta-France,
Austria, Italy, Spain, Portugal, and Japan, all of
whom have buyers upon the markets. They are
known as the Regie buyers, and they purchase a
very large amount of the crop, probably 100,000;
000 pounds a year. Then there are the speculators
in tobacco, who are a very numerous.clasQ; and
then the Imperial Tobacco Company, here. repre
sented by Mr. Hornblower, which purchases an-
nually 54,000,000 pounds. In addition to these
there. are all the independent manufactarers in
every branch of the tobacco trade. So that I feel
myself entirely justified in saying that the Record
in this case proves beyond all question that tobacco
is bought in competition.
of some activity resulting in exclusion or restraint.
Our contention is that whatever the magnitude of
the concern may be, however great the volume of
business that may be in its hands, It is not guilty
of the crime of monopolizing or attempting to mo-
nopolize unless it has done or is doing something
by which there is either accomplished or attempted
this result, namely, that the subjects in general=
persons not connected with the concern-are re-
strained from that liberty of trading which they
had before.
This interpretation of the Act makes the second
section understandable and supplements the first
section. The second section condemns as criminal
not only every person who monopolizes trade or
commerce, but also any part of such trade or com-
merce. If by monopolizing is meant a mere uni-
fication of ownership, to what extent must that
proceed before the offending party shall have mo-
nopolized any part of trade or commerce? Is it
ten per cent, twenty-five per cent., fifty per cent.,
or what? If the tendency towards monopoly is the
criterion, to what extent must the tendency pro-
ceed before the line is crossed and criminality be-
gins? Is it twenty-five, or fifty, or fifty-five or
sixty per cent.? And does the rule fluctuate with
different industries? Is not a tendency of forty per
cent, in a branch of trade where the supply of raw
material is limited more injurious than a tendency
of eighty per centt in a branch where there is no
limit to the supply of the raw material? The sec-
ond section of the Act is not directed against those
who are conducting business on a large scale. It
applies as well to either an individual or a combi-
nation, or aggregations of individuals, who have
acquired only a part of the trade In some locality.
It is directed against the individual or combination
of individuals, wherever they are, whose course of
conduct or whose unfair practices in any part of
pete with or use in competition the properties so
sold.
I ask my learned friend, Of what value would
have been our brands to the Imperial Company
if we had left ourselves at liberty, without a cove-
nant, to proceed and manufacture in Great Brit-
ain notwithstanding the sale of the brands? Of
what value would their brands have been to us un-
less we had taken from them a covenant not to
compete with us in the United States and not to
use in the United States the brands we sold them?
That is all there is to the English transaction,
except the export business. Both of these com-
panies had an export business-that is, a business
foreign to the United States and foreign to England.
Both sold that business, with the brands, to the
British-American Company. The American To-
bacco Company conveyed its export business and its
factories to the British-American Tobacco Com-
pany, and took cash for the transfer. The Im-
perial Tobacco Company did the same. And the
British-American Company has from that time on
conducted the export business which formerly be-
longed to these two concerns, with enormous addi-
tions made by its own activities, and has been in
no sense a holding Company.
It has been one of the most valuable things ever
done for growers of tobacco in the United 8tates.
Since its organization seven years ago the British-
American Company has increased the use of Ameri-
can leaf in manufacturing here for export purposes
from twenty million pounds a year to over thirty
million pounds a year.
.
Supply Companies.
Now as to our supply companies: On this sub-
ject the learned Assistant Attorney-General in-
dulged in such generalizations as would induce
your Honors to believe that we had extended our
Afterwards it acquired some manufactories
which manufactured cigars of a different grade in
Florida. Then it acquired some factories in Cuba
and Porto Rico. But it has never done half of the
business that is done in Cuba either in cigars or in
cigarettes; and not over twenty-five per cent. of the
Cuban cigars which it manufactures come to the
United 6tates.
American Stogie Company.
It was found from experience that the cigar busi-
ness required some subdivision in order to be effi-
ciently managed. Therefore we formed in 1903 the
Stogie Company; which is a concern organized to
manufacture the cheapest kinds of rolls of tobacco,
called stogies and tobies, a kind of cigar that is
sold for about one cent apiece. We have never bad
more than fourteen or fifteen per cent. of the stogie
business.
The stogie business was organized for the same
purpose as the cigar company-in order that we
might have a more effective organization for this-
part of our manufactured product. All of these
companies-the American Snuff Company, the
American Cigar Company, and the American
Stogie Company-have separate leaf-buyig g estab-
iishments. They buy in competition so far as they
are of similar grades, and have different selling
organizations and different selling plans.
English Contracts and Companiea
That brings me to the foreign business. It was
a very natural thing, I suppose, that the American
Tobacco Company should endeavor to extend its
trade to foreign countries. At least, we have
always looked upon it as a proper, and, indeed, a
patriotic performance, until now. We extended our
trade abroad as best we could, and among other
places to Great Britain. The tariff laws of Great
58685341
those manufactured by the company that he had
sold to us, he saying:
"Dealers and consumers throughout the
United States are acquainted with the qnal-
ity of the goods manufactured for twenty
years by the Daniel $cotten Company, and
as nearly the entire force of employes of
former years will be with us, our consequent
aim will be to place upon the market a sn-
perior line of goods" (Vols. II, p. 708, IV, p.
448).
It seems to us that experiences of this sort fur-
nish a complete justification for taking the cove
nants which we afterwards took for the protection
of our property.
Leaf Buying.
The Government says:
"We discover an evidence of your actual
intention to restrain trade in your methods
of buying leaf."
To this we reply that there has been no sabstan-
tial lessening of competition in the purchase of
tobacco leaf; that tobacco leaf is bought now, as it
always has been, in competition; and that, on ac-
count of the conditions peculiar to the growth of
tobacco leaf it is immaterial whether It is bought
in competition or whether there is only one buyer.
It appears that there are four great crops of tobacco
in the United States. There are aiz minor crops.
There is the Virginia flue-cnred crop-a very large
one, amounting to about 200,000,000 pounds a year.
Then there is the dark western crop, grown for the
most part in Tennessee. Then there is the well-
known bnrley crop, and then the great seed leaf
crop, from which cigars are made, which grows in
Connecticut, Pennsylvania, New York, Ohio, and
Wisconsin. The claim is now made-
66
adorned as it is with sound reasoning and great
force and elegance of expression. It is as follows:
"I conceive that it ('monopoly' under the
Sherman Law) is not sufficiently defined by
saying that it is the combination of a: large
part of the plants in the country engaged in
the manufacture of a particular product in
one corporation. There must be something
more than the mere union of capital and
plants before the law is violated. There
must be some use by the company of the
comparatively great size of its capital and
plant and extent of its output, either to
coerce persons to buy of it, rather than of a
competitor, or to coerce those who would
compete with it to give up their business. .
There must, in other words, be an element of
duress in the conduct of its business to-
wards the customers in the trade and its
competitors before a mere aggregation of
plants becomes an unlawful monopoly."
The second section, in our view, refers not to a
status at all, but to activities. As I have said, the
noun "monopoly" is not used at all. The section
uses the verb "monopolize." Our contention is that
concentration of capital is not monopolizing; busi-
ness on a large scale is not monopolizing; an ag-
gregation of plants is not monopolizing; unifica-
tion of management and control do not constitute
monopolizing. In enacting this law, Congress
must be presumed to have had the common law in
mind, and we may well turn to the common law def-
inition to see whether or not that does not throw
some light upon the meaning of the word as used
by Congress. Monopoly at common law was "a
license or privilege allowed by the King for the
sole buying and selling, making, working, or using
of anything whatsoever whereby the subject fn
general is restrained from that liberty of ma.nufac-
tu*inea or trading which he had before." The word
"monopolize" carries with it, therefore, the idea
68685385
has been appropriated by Congress for this purpose,
and the great number of able and distinguished
lawyers who have been retained for the purpose of
making these investigations, this beggarly showing
becomes all the more surprising. At the time when
this case was tried the American Tobacco Com-
pany had been engaged in business for eighteen
years. During that period millions of men had
come in contact with it as growers, manufacturers
and consumers of tobacco; during that period it
bought many plants, some of which had been in
competition with it; it introduced new methods of
doing business; it put in operation many economies;
it wrought changes in the method of conducting
the tobacco trade; it. discharged many employes.
If it is true, as charged in this petition, that its
growth and prosperity were due to unfair methods
of competition which have injured competitors,
driven some persons out of the trade and deterred
others from entering it, it is almost incredible that
the Government sbould have been unable to pro-
duce some direct and weighty evidence tending to
prove the charge. Yet, as I say, only nine wit-
nesses were produced, and for the most part their
testimony is so weak and uncertain as to be little
more than trivial. What a beggarly showing when
we compare it with the extravagant language of
this petition!
Now, who were the nine? There was one specu-
lator in tobacco; two jobbers; one retailer; four
salesmen, and one manufacturer.
The speculator was Mr. Dunkerson, of Louisville,
Kentucky. His only complaint was that he was
unable to continue in business because the Ameri-
can Tobacco Company paid more to the farmer
than he could afford to pay and make his profit
(Vol. IV, p. 103).
Mr. Justice Harlan: What farmer do you refer
to?
Mr. T
farmers
Tobacce
be felt
makeae his atte
he has f
Mr. J
stood a;
pany pa
people?
Mr. I
kerson
Hillmai
strued :
the Am
throng>?
Metropp
formed
and thE
of toba
This, nc
the Am.
sell its
territor
his esa
creased
handle
pany, ~
the ind
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Compa
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indepei
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H
60
Tobacco Company and some of these secretly con- ~
trolled companies, and correspondence relating to
other matters. As this correspondence seems to
be the chief reliance of the Government in this case,
and as it finds in it some intention on the part of
the American Tobacco Company to restrain or ;
monopolize trade, it is important to consider it.
The Government in this case required the defend
ants.to exhibit all of the correspondence conducted
'
by the officers of the company in its several deparG '
ments from the date of its organization down to ,
the time of the bringing of the. suit. There is no
suggestion that any correspondence was withheld '
or destroyed. In this way the Government came
into possession of at least 25,000 letters, written
in the daily course of business either by the officers
of the American Tobacco Company or addressed to
them by others. Out of these 25,000 letters the
Government has put in evidence in this case only
216 letters or parts of letters. Out of these 216
letters or parts of letters it has put in the brief
thirty-seven letters or parts of letters. It is a ,
reasonable inference that the remaining 24,784 let-
ters which were examined by the Government con-
tained nothing which would serve its purposes. ,
So that our offending, if any, disclosed by the le6
ters, is inconsequential.
The question naturally arises, why was the,
ownership in these companies kept secret for a i
time? Was it for the reasons assigned by the Gov~
ernment, to coerce and crush competitors? If eo,#
what evidence is there that any competitor was e~
coerced? The only one who makes any claim 0
coercion is Mr. Puryear, of the Nashville Tobaca
Works, and he makes no reference whatever to
operations of a secretly controlled company.
As a matter of fact, the reason for maintai
secrecy was entirely different. It was a matter
of aggression, but of seif-defense. The indepen
5BG853''19
manufa
ship, v
creatin
Compa
they fo
anti-tr,
.
to util
opinioi
Tobacc
That i
Compr
he wa
any of
the sa
organi
of wa4
of tha
Me(
the A
ferent
turert
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Amer
mean
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in th,
In tl
powe
of hi,
comk
and
(ilob
ns
Third, by preventing them from the equal use of
transportation facilities for the purpose of bring-
ing raw material to the factory, or the manu-
factured product to the market.
And fourth, by preventing others from enjoying
the free use of the machinery of distribution-in
the tobacco trade, jobbers and retailers.
Let us test the conduct of these defendants with
respect to these things. Certainly there is nothing
in this evidence to show that- these defendants
have ever attempted to prevent any of their com-
petito~rs from obtaining any of the raw material.
They own no tobacco lands in the United States,
and, as I have said, they purchase Iess than half the
crop. There are thousands and thousands of acres
of land in the United States which are available
for tobacco. Every pound they purchased, they
purchased in competition with others, and they
purchased it only for their own needs. There is
no instance to be found where any purchase of raw
material was made for the purpose of depriving
a competitor of his share of the raw material.
The next is: By preventing others from obtain-
ing their fair requirements of machinery or other
facilities.
There is no such contention as that in this case.
It appears that before the American Tobacco Com-
pany was formed cigarettes were made by machin-
ery. There is nothing to show that anybody who
desired to manufacture cigarettes might not have
obtained a license. Certainly the patents on ciga-
rette machinery have expired long ago. The Amea
ican Cigar Company owns a machine for the man-
ufacture of cigars, but it has never been successfuL
Companies controlled by the defendants furnish
their competitors with other materials necessary
for manufacture, such as foil, bags, boxes and lic-
orice, et cetera, at the same price as to them, and
all of these materials can be procured from others.
As I have said several times in the course of my
argument, the defendants have never prevented
others from the equal use of transportation facili-
ties. They have never enjoyed an advantage of
this sort over their competitors.
This brings me to the last proposition: The de
fenda.nts have never prevented others from enjoy-
ing the free use of the machinery of distribution in
the tobacco business-jobbers and retailers.
I suppose that if your Honors, in looking
through this Record, could see that these defend
ants have practically made it impossible for any-
body to go into the tobacco business in the United
States by reason of their conduct in obstructing
the avenues of distribution, you would find some
way to condemn us under the second section, be-
cause of our monopolizing conduct, by enjoining
the continuance of such operations; but what
I say is that it is proved in this Record, not only
beyond a reasonable doubt, but to a demonstration,
that the avenues of distribution for tobacco prod-
ucts have always been free and open, and are so
to-day. 8o that any man with the smal]est capital
can go into the tobacco business in the United
States.
I go much further than admitting that there fs
any balance of evidence on this branch of the case.
I am satisfied that when I am through with my
statement, one thing that every member of the
Court will be satisfied with-whatever the Court
may think about anything else-is that the avenues
of distribution have never been obstructed by these
defendants, but have always been open and free,
and that any man can go into the tobacco trade to-
morrow, and if he has the luck or skill to make a
brand which will attract consumers, and he man-
ages his business economically and skillfall.v, he
can achieve success.
The Government, however, takes issue with us
f
21
an additional business of only 2,000,000 pounds.
But it has now achieved a business of 22,000,000
pounds. 8o that if you add the 2,000,000 pounds
which it acquired to the 9,000,000 which it had
when it was organized, we find that by the unusual
activity and intelligence of its management it has
doubled its own business.
American Cigar Company.
The Assistant Attorney-General makes a great
criticism upon our going into the cigar business.
He said that having acquired the snuff business we
had branched out to get control of the cigar busi-
ness. Well, if we did we have certainly been very
unsuccessful; because, as I have said, we never had
more than sixteen per cent. of the cigar business,
and that has decreased to fourteen per cent. But
why should we not have gone into the cigar busi-
ness? If we had succeeded in other branches of
trade, why should not some of our surplus be ex-
pended in expanding our trade in the direction of
the cigar business? The cigar business is an im-
mense one. There are seven thousand millions of
cigars produced annually in the United States, the
value of the output being *350,000,000; and all that
we have ever done of it is;.50,000,000.
We went into the cigar business in order to es=
pand our trade. Having no organization for the
manufacture of cigars, and having a cheroot busi-
ness of our own which we had acquired in 1891, the
American and the Continental companies in 1901
co-operated with Powell, Smith & Company (a large
cigar manufacturing concern) to form The Amer
ican Cigar Company with a capital of #10,000,000.
Afterwards it acquired some manufacturers in
Florida-
Mr. Justice Lnrton: What was that year, Mr.
Nicoll? I did not catch it.
Mr. Nicoll: The year?' 190L
I
ti,
co
l
1T
the new company, or, at their election, some pre-
ferred stock; while the common stockholders of the
Consolidated Company received the common stock
of the American Tobacco Company. Of course a
transaction of that sort could not be executed with-
out some differences of opinion. Litigation arose
in the State of New Jersey; and the whole matter
was considered and thrashed out in its courts,
and finally decided in favor of the legality of the
merger.
Such, in brief, is the history of the American
Tobacco Company from 1890 to 1904.
Mr. Justice Lnrton: Was there an opinion in the
merger case that you speak of?
Mr. Nicoll : Yes, your Honor. It is referred to, I
think, in the brief.'
The American Tobacco Company.
The American Tobacco Company, formed in this
way, is not a holding company. It has factories for
the manufacture of its products in New York, in
Baltimore, in Richmond, in Durham, in Danville,.
Loniaville, In St. Louis, in Cincinnati, in Chicago,
in Middletown (Ohio), and in other places. It
manufactures in its own factories the greater part
of its output Out of a total output of all concerns
in which It had an interest of 3,900,000,000 ciga-
rettes in 1906, it manufactured 3,200,000,000. It
manufactured in ite own factories 942,000,000 little
cigars, as against 12,000,000 manufactured in the
factories in which it held stock. It manufactured
98,000,000 pounds of plug tobacco in its factories,
aa against 68,000,000 pounds manufactured in the
factories in which it held stock. And the only
branch of the tobacco business in which the com-
Ihelbeima o. Consolidated Tob~ Oo., 69 AU. Rep., 685:
no0 in N. J. Court ReporFa. Complainanta never took Che
cese to the Court of Erro:e and Appeela, so a few days later
sn order was entered di®ie®ng it.
n
74
company through all the jobbers through whom
they desired to distribute them from the Atlantic
to the.Pacific coast.
Now, the defendants called in this case eleven
of the great tobacco jobbers, doing business in all
sections of the United States, with annual sales
of W,000,000. All of them testified in corrobora-
tion of the Government witnesses whom we have
mentioned, that there was no restraint upon the
distribution of tobacco by the American Tobacco
Company or by companies in which it was inter-
ested, and that the avenues of distribution were
free and open. They came from all parts of the
United States.
There was Mr. Letts, from the North and Middle
West, doing an annual business of $16,000,000.
There was Mr. MeCord, from the Middle South-
west, doing a business of $12,000,000.
There was Nathan Eckstein, from the Pacific
Coast; Mr. Brewster, the owner of a large house
tin Rochester; Mr. Wilson, one of the large New
England jobbers at Hartford; Mr. Savage, of Ban-
gor, Maine; Mr. Furst, of Charleston, S. C.; Mr.
Jenkins, of Pittsburg; Mr. Deiches, of Baltimore;
Mr. Johnson, of Utica; Mr. Sheppey, of Toledo, and
Mr. Lee, of Detroit.
They all testified that the jobber could be of aid
to the manufacturer in furthering the distribution
of his goods; that that aid consisted in calling
especially to the attention of the retailer, through
drummers, particular brands, but that, after all,
the success of particular brands could only be
achieved by the manufacturer by the creation of a
consumer's demand; that the giving of special
commissions by manufacturers to distributers to
stimulate their efforts had always been done by
tobacco manufacturers other than the American
Tobacco Company, and by manufacturers of other
products than tobacco; that none of the defend-
58685.3g3
72
elusive handling, giving to those who accepted the
proposition eight per cent. The jobber who did
not desire to handle their goods exclusively could
still make a two per cent. profit, because his more
favored competitor who received six per cent. was
prevented from cutting the price. Now, in the first
place, this method was definitely and finally aban-
doned in November, 1904, nearly three years before
the institution. of this litigation. It lasted only a
few months. The American Tobacco Company
tried the plan at the request of the jobber, not ea-
pecting to monopolize the trade, but expecting that
a proportion of the jobbers would accept the propo-
sition and make a profit on their goods, and re
frain from handling the goods of competitors;
whereas another proportion of the jobbers would
not accept the proposition, but would devote their
energies to selling the goods of competitors. No
such plan as this could give any monopoly, because
tobacco jobbers are not a privileged class created
by patent The jobber handling tobacco to-day
may refrain from handling it to-morrow. The re
tailer of to-day is the jobber of to-morrow. As a
matter of fact, the independents made such distri-
bution during all this time as they desired through
other jobbers and retailers.
Again, it is said that the avenues of distribution
are obstructed because certain jobbers received a
special commission from some of the defendants.
It appears that the smoking department of the
American Tobacco Company sells to 5,000 jobbers,
and of these 5,000 jobbers it pays.a special commis-
sion to 263. The purpose of this payment is to
stimulate the efforts of the jobbers in the distri-
bution of the products of the American Tobacco
Company. But it is shown that the payment of
such commissions is a customary thing in the to-
bacco trade and in other trades, and that inde-
pendent competing manufacturers also pay cum-
It is not even verified, and no testimony was
brought to support any of its accusations, except
the trivial evidence of Mr. Stone.
In this connection I desire to call your Honors'
attention to the brief which you have before you,
filed by the Richardson Company. I make very
severe criticism of that brief for the reason that
the brief is based upon facts contained in an un-
verified answer, and ivhich were not supported or
attempted to be supported upon the trial of this
case by any witness. I
Now, another charge is that the American To- 4
hnrrn (`mmnanv_ for the nnrnnae of freezin¢ out and !I
coercing into a willingness to sell, other manufac-
turers of scrap tobacco, early in 1906, advanced the
price of the raw material and at the same time re-
duced the price of the manufactured scrap goods,
so that no scrap manufacturer could exist. The
manufacture of scrap tobacco is a comparatively
new business. The product is made from cigar
clippings, and also from leaf not suitable for the
manufacture of cigars. The American Tobacco
Company had not engaged in this line of business
until they bought, in 1899, the business of Luhr-
man & Weliman, in Cincinnati. Their ownership
of that business being known, a combination was
made against them by the labor unions and inde-
pendents in the City of Cincinnati, and great dif- ~ I
ficulty was experienced in selling their goods. In
was 11
an
order to meet this situation a new com
y
p
organized and its ownership kept secret. The
price for cigar clippings was advanced, but only
because it was necessary for the business. All this
is explained by Mr. Duke, who, complaining that
the American Tobacco Company was not getting ,I
its fair share of the scrap business, was met with
the statement that sufficient clippings could not be M
procured. He advised the managers of the business m
to increase the price until they could get enough. ~
Cll
W
43
rP
missions, and indeed, pay co*nmiffdons for the same
purpose to the same jobbers. The receipt of such
a commission from one manufacturer entails no
duty upon the jobber not to receive the same sort
of special commission for the same sort of special
service firom any other manufactarer.
Now, all of the officers of the American Tobacco
Company called by the Government upon their
cross-examination clearly established that the ave-
nues for the distribution of tobacco products had
always been and are now open. But their testi-
mony constitutes only a small part of the evidence
upon this branch of the case. Other witnesses
called by the Government and wholly independent
of, or even hostile to the American Tobacco Com-
pany, testified to the same effect
Testimony of Competitors and Jobbers.
Mr. Bendheim, President of the Metropolitan
Tobacco Company, declares that his company was
the sole customer of the American Tobacco Com-
pany in New York and received a five per cent. com-
mission from it, but handled the tobacco and cigar
ettes of a large number of independent concerns,
makes no report to the American Tobacco Com-
pany, and receives commissions from such inde
pendenta
Mr. Henry M. 8tone, to whom I have referred
before, a witness for the Government, salesman for
Mr. Richardson, testified that in the Southwest,
where he sells the tobacco of his present employer,
be had no difficulty in making free distribution of
his products.
Mr. Addison Fowler, a salesman for the United
States Tobacco Company, called as a witness for
the Government, said that since the fall of 1904
(that is, the occasion of the New England and
Philadelphia deal) there had been no difficulty in
securing the distribution of the products of his
0
64
sary effect or result of its existence and the appro-
priation of so large an amount of the tobacco busi-
ness is, in itseif, a restraint of trade because of
the suppression of competition incidental to its
development.
To this we reply, upon the authority of many
cases, never overruled by this Court, that if the
chief result of a combination formed to engage
in or conduct interstate trade is to foster the trade
and to Increase the business of those who make and
operate it, it does not fall under the ban of this
law even if its necessary effect is to incidentally and
indirectly restrain competition. The act does not
condemn all restraints of trade, but only those
which are brought about by contracts, combinations
or conspiracies which directly and immediately at-
fect interstate commerce. Such restraints as are
incidental or collateral were never intended.
How, then, has the freedom of trading been re-
strained by the operations of the American Tobacco
Company? Certainly not by any diminution in the ,
volume of trade, for all the evidence shows that
that has been immensely increased; not by raising
the prices of the manufactured products, or by d'r
minishing the price of the raw material, for the
price of the first has not increased, nor the latter
diminished. All the evidence in the case points the
other way. Not by agreements with competitors not ..
to compete, or by agreements to act in concert with.,«h
respect to prices; not by agreements to limit prodne'~
tion or to divide territory; not by contracts for e=,'
clusive handling, for the one instance of that w
induced by the jobbers themselves and was ab1
doned many years before this suit was brought.
the covenants taken from vendors required them
refrain from trade for a limited period of time,
covenants cannot be deemed restraints, because
were really a part of the good will of the bnef
which was sold. If competition has been termin
b868538a
it was
chase (
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68
trade prevents others from enjoying that liberty of
trading which they had before. It condemns, in a
'word, those activities which exclude, or attempt to
exclude, others from their constitutional right to
engage in any branch of industry which they may
see fit to select. And the course of conduct which
is condemned is the course of conduct not allow-
able in competition at common law, and which is
punishable either by indictment or suit for dam-
agea
The great purpose of the Act was to protect the
freedom of trading, and not to bring on an eco-
nomic revolution. The first section is what we may
call the contract section, because, after all, a com-
bination or conspiracy is founded upon a contract.
The first section of the Act declares, therefore,
that the freedom of trading shall not be restrained
by contract. And lest there should be some other
way of preventing freedom of trading, the second
section declares that the freedom of trading shall
not be restrained by conduct-that is, by such con-
duct as will prevent the subject at large from en-
joying that liberty of trading which he had before.
If this is the correct interpretation of the statute,
let us examine the conduct of the defendants to see
whether or not they are guilty of monopolizing or
attempting to monopolize. Our view is that no
combination or individual can be charged with
monopolizing under this Act unless he excludes
others or attempts to exclude others in certain
ways, because only these ways are adequate to
produce such a.resalt:
The first is by preventing others from getting
their fair requirements of the raw material.
Secondly, by preventing them from getting their
fair requirements of machinery or other facilities
necessary to produce a given commodity.
S868S36''J .
71
on this contention, and insists that the avenues of
distribution have not been free and 4Pen, by rea-
son of our conduct, and they give three reasons.
The flrst is that we own a few retail stores and
one jobber. The second is because in 1904 we made
a temporary arrangement for exclusive handling
with some jobbers in New England and Philadel-
phia. The third is because we have paid commis-
sions to a small number of jobbers.
Let us take these claims up in order. The first is
that we own some retail stores and one jobber.
There are in the United States 600,000 retailers of
tobacco. We have an interest in 409. There are
599,591 stores in which we have no Interest at all.
There are over 5,000 jobbers of tobacco. The
American Tobacco Company controls one and the
American Cigar Company controls six.
Now, let us consider the New England and Phila-
delphia deal of 1904. The charge is made that by
making an agreement for exclusive handling with
jobbers in New England and Philadelphia all the
goods of independent manufacturers were thrown
out summarily, and that their business was inter
fered with. To begin with, this transaction for ez-
clusive handling was not proposed by the Ameri
can Tobacco Company, but by certain jobbers for
their own beneflt. As a result of that proposal the
American Tobacco Company agreed with certain
jobbers of New England and Philadelphia that if
they would confine their sales to the products of
the American Tobacco Company they would re-
ceive a special commission of six per cent. on their
sales. This, however, was only a part of a general
proposition made to those jobbers, the whole being
that they should buy goods at a list price with
two per cent, commission if they maintained the
list, and then six per cent. additional for such ex-
51
Mr. Nicoll: Mr. Dunkerson was buying from the
farmers as a speculator, and when the American
Tobacco Company increased the price to the farmer,
he felt that that was more than he could pay and
make a profit, so he went out of business and turned
his attention to the. export tobacco trade in which
he has greatly prospered.
Mr. Justice Harlan: Do you mean to be underr
stood as saying that the American Tobacco Com-
pany pay the Kentucky farmers more than other
people?
Mr. Nicoll: No; they paid more than Mr. Dun-
kerson was willing to pay. One jobber was Mr.
Hillman, of New York. If what he said can be con-
strued into a complaint, it amounts to this: That
the American Tobacco Company sold all its goods
through one jobber in New York City, namely, the
Metropolitan Tobacco Company, a jobbing concern
formed by the consolidation of many large jobbers,
and that prior to its organization a large number
of tobacco jobbers had done a prosperous trade.
This, no doubt, was true, but can fault be found with
the American Tobacco Company because it chose to
sell its goods through one large jobber in a given
territory? So far as Mr. Hillman was concerned,
his examination showed that his business had in-
creased from year to year, although he refused to
handle the goods of the American Tobacco Com-
pany, confining his distribution to the goods of
the independents, while the Metropolitan Tobacco
Company, a concern in which the American Tobacco
Company never had an interest, handled the goods
of the American Tobacco Company and of the inde-
pendents alike.
The other jobber was Mr. Mathews, of Nashville,
a wholesale grocer. He had handled the plug
brands of the American Tobacco Company, bnt gave
them up and confined his attention to those of the
independents, because the American Tobacco Com-
65
it was only by lawful consolidation or by the pnr-
chase of competitors for the legitimate purpose of
business expansion. The methods of competition
practiced by the defendants, as we ehall see, have
not driven out or deterred others from entering the
tobacco trade. What burdens, then, have been put
npon the free flow of commerce? How has it been
restrained?
Monopolizing.
The Government, however, charges that we have
monopolized or have attempted to monopolize part
of the trade and commerce of the United States.
This eontention was not considered by the Court
below, which based its decision upon the first sec-
tion of the Act, and made no decision under the
second section.
In discussing the meaning of the second section,
the views of the Government and our own are far
apart. Although the word. "monopoly" is not used
in the second section, the Government injects the.
word and claims that it was directed against mo-
nopoly as a atatua It defines monopoly as any
such dominant control over a branch of indnstry
by unification of management as will enable the
owner to control prices and output, or which tends
to enable him so to do.
Of course this definition makes no distinction be-
tween an individual and a corporation; for it is
evident that an individual by an acquisition of
property might reach the degree of control which
the qovernment describes as a monopoly. This
construction of the Government is entirely at vari-
ance with the views recently expressed by the pres-
ent Chief Executive of the IInited States, who is
not only a great lawyer, but a great judge, and
whose judgment in the Addystone Pipe & Fonn-
dry case was one of the most important contribn-
tions to theinterpretation of the 8herman law,
I
I
American Tobacco Company. He testified that in
1904, in the State of Mississippi, he sold for the
American Tobacco Company a cigar called Lisco,
together with Bull Durham tobacco, and with each
pound of Bull Durham the Company gave away free
another pound. The inference is that this was in-
tended to crush Old North State tobacco, a brand
selling in Dfisaissippi and belonging to Mr. Stone's
present emploSer, the R. P. Richardson, Jr., Com-
pany, Incorporated. He did not testify that any
injury had been done to the Old North State. As
a matter of fact, he evidently misunderstood the
whole transaction, for it appeared from the testi-
mony of Mr. Hill, of the American Tobacco Com-
pany, who was called to explain it, that the mat
ter had nothing to do with the tobacco business at
all, but that the Bull Durham was given to facil-
itate the sale of a brand of cigars known as the
Lisco cigars, and that the expense involved in this
Bull Durham gratis was ebarged, not to the Bull
Durham brand, but to the Lisco cigar.,
In this connection it is to be noted that while
Stone was put forward by Richardson, the princi-
pal himself did not come to the witness stand. In
the year 1903, the American Tobacco Company
bought a majority of the stock of R. P. Richardson
& Company, and before the present suit was begnn
the minority holders of the stock brought suit to;
set aside the contract under which the Ameri
Tobacco Company acquired the stock: The
ardson Company was made a defendant in the
ent suit and, as the minority stockbolders are
control of Its affairs, they were given an
tunity to exploit, for the benefit of the
ment, all the charges it desired to make agafnst
American Tobacco Company. The answer of
Richardson Company, which contains many
against the American Tobacco Company, ap
in the Record. Of course,its answer is not
1
75
ants had directly or indirectly required or asked
them not to handle competing goods; and.that all
of them did handle competing goods to the extent
desired by their customers. All of them, with two
exceptions, however, testified that they did not, and
did not want to handle the cigars made by the
American Tobacco Company, preferring to handle
the other independent brands of cigars. And that
is a very significant circumstance when we come
to consider the question of power.
In addition to all this proof, three of the great
independent manufacturers of the United 8tatea-
Mr. Bloch, the leading scrap manufacturer; Mr.
Peper, the leading plug manufacturer, and
Schinasi Brothers, the leading independent cigar-
ette manufacturers-all testified that in marketing
their products they have never found the channels
of trade obstructed and have never had any difi'i-
culty in securing jobbers or retailers to handle
their goods.
1
Now, for further proof that the defendants have
not attempted to monopolize this trade, I say:
First.-They have not sought to prevent their
competitors from securing leaf tobacco. There is
not a line of testimony in the record showing the
purchase of a pound for any other purpose than
to supply the requirements of the defendanta
Second.-The supply companies owned by the
defendants, producing licorice paste, boxes, foil
and bags, sell to competing manufacturers on sub-
stantially the same basis as to the defendants
themselves.
Third.-The stores owned by the defendant to-
bacco manufacturers sell products of the competing
tobacco manufacturers.
Fourth.-The jobbers who receive special allow-
u - ...
The Chief Juatice: What is that?
Mr. Nicoll: That must have been a very ezcep
tional instance.
The Chief Justice: I do not mean to say that it
was an accurate one.
Mr. Nicoll: Take, for instance, land in Sen-
tucky, in the Blue (3rass region. There could not
be any question about the ability there-
Sir. Justice Harlan: There is a very small por
tion of that State that is embraced in the Blue
Grass region.
The Chief Justice: The country between S~Vin-
cheater, practically, and the Ohio River, is called
the Blue Grass region.
Mr. Justice Harlan: The Blue Grass region is
practically in the center of the State, and does not
embrace more than fifteen per cent. of the whole
territory of the State.
The Chief Justice: I do not want to interrupt
you, Mr. Nicoll.
Mr. Nicoll: I am glad to have yoa interrupt me.
I feel so confident on this thing about the Record
,that I am glad to have your Honors ask me any
questions with regard to it.
Methods of Competitlon.
Now, after all, the main contention of the
learned Attorney-Qeneral is that the evidence of our
intention to restrain trade is to be found in our
methods of competition, which the petition charges,
in general terms, to have been unfair, oppressive
and coercive.
Only nine witnesses were called by the (Iovern-
ment to make any complaint of our methoda of
competition. I consider this a most surprising cir-
camstance When you consider the enormous
powers of investigation conferred upon the Govern-
ment as the result of the decision in the caae of $ale
os. Henkel, the enormous amount of money which
If there is one fact which stands out in this
record above all the rest, it is this: That the prices
of tobacco leaf have been constantly increasing
ever since the organization of the American Tobacco
Company. In some instances the price has in-
creased one hundred per cent.
The Chief Justice: You are stating now that
there has been an increase of the price. Do you
get at the increased price by the average price of
tobacco, or how do you get at it?
Mr. Nicoll : We take a series of years, and find out
what it has sold at per pound in each year.
The Chief Justice: In each year? Do you mean
the average during the year?
Mr. Nicoll: Yes.
The Chief.Justice: You are not taking certain
periods of the year?
Mr. Nicoll : No, sir ; I am taking the average.
The Chief Justice: Now, has the effect of this
competition been to lower the prices when the
American Tobacco Com_pany was buying and there-
by acquiring the production of the producer, and
then to raise the prices? That might be done
ruthlessly, and yet the average might not show it.
Mr. Nicoll: There is nothing of that sort in the.
Becord, your Honor.
The Chief Justice: You have not anything as to
the fluctuation of the prices?
Mr. Nicoll: We have a great deal. We have
tables here, to be found in Volume 6 as one of the
exhibits in the case, dealing with the annual crop
and purchases.
Mr. Justice Lurton : Do they deal with the dif-
ferent types of tobacco?
Mr. Nicoll: Yes; they deal with the different
types of tobacco. All of the different types are;
dealt with in this table.
Mr. Justice Lurton: A great part of the tobaceo
of Ohio is burley.
58685365`
ances from defendant manufacturers handle the
goods of competing manufacturers.
Fifth.-The only two occasions when the Com-
pany adopted trade plans by which its customers
were not at liberty to buy competing goods were
occasions when such plans were suggested by the
customers themselves, and were abandoned as poor
business policy long before this suit was brought
Sixth.-The American Tobacco Company, or its
predecessor, the Continental Tobacco Company,
sold a tobacco manufacturing plant to 8cotten-Dil-
lon Company with the knowledge that it was to be
used as a competing factory.
8eventh.-No effort has been made to buy the
large manufacturing establishments of Bloch
Brothers, Peper, the Globe Tobacco Company, and
Schinasi, all great, successful and aggressive com-
petitors of the defendants.
Eighth.-A large part of the customers of the de-
fendant, the American Tobacco Company, do not
deal in the cigars of the American Cigar Company,
although they know of the interest of the American
Tobacco Company in the Cigar Company. This ap-
plies to those who receive special commissions.
Ninth.-The defendants have not taken from their
employees, who are in possession of the secrets of
manufacture, covenants not to engage in the tobacco
business.
Tenth.-The defendants have never sought ad-
vantage over their competitors in transportation.
If this great array of facts and circumstances is
not enough to prove that there has been no monopo-
lizing or attempts to monopolize on the part of the
defendants, we have two other great and over
shadowing facts which I have reserved to the last,
to show that the operations of these defendants have
in no way interfered with the prosperity of their
competitors in the tobacco trade. And, what is more
important, that during the period of their prosper-
pany would not fix the price for its goods and
guarantee its maintenance, while some of the inde-
pendents guaranteed the maintenance of the price
and a profit of ten per cent. He continued, how
ever, to handle our smoking brande. In a short
time he found that he could make better sales of
other goods by handling the. American Tobacco
Company's plug brands, whereupon he resumed
their distribution (Vol. IV, p. 192).
The only retailer who made any complaint was
Mr. Schulte, of New York, and he proved himself
to be a past master in the ways of competition, and
had devoloped a very large and constantly increas-
ing business. I leave his case for the consideration
of Mr. Stroock.
The four salesmen were Mr. Harrington, of the
Laras Company, of Richmond, a successful manu-
facturer; Mr. Choate, of the Byfield Snuff Com-
pany; Mr. Stone, of the Richardson Company; and
Mr. Fowler, of the United States Tobacco Company.
The complaints of Harrington and Fowler were
confined to the New England and Philadelphia deal
of 1904, when, at the instance of the jobbers, the
American Tobacco Company made, for.a short time,,
an arrangement for the exclusive handling of their
goods in those localities. Both of them testified
that before and since then the business of their em-
ployers had steadily increased, and that even in
that year it had suffered no substantial decline,
because of their ability to secure distribution
through other jobbers and retailers. I will dis-
cuss the testimony of Mr. Choate and Mr. Stone ae
I proceed.
The only manufacturer who made complaint wae
Mr. Puryear, of the Nashville Tobacco Works, M
ferred to by Mr. McReynolds yesterday. q
i
No
petit
denc
03
ende
whi(
Win
intr,
peti
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erb(
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the
pa)
l
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83
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of
pe
br
pN
confronted with a potential competition consist-
ing of an almost unlimited amount of unemployed
capital which is ready for investment in any field
where prices are advanced to a point where they
are abnormal or oppressive.
There. are certain things in the Record which
illustrate this want of power on the part of the
defendants, and curiously enough one of them is
this very New England and Philadelphia deal upon
which so much stress has been laid by the (Qovern-
ment.
Early in 1904, as we have seen, the defendants
put on in New England and Philadelphia a plan
for selling goods under which the jobber was guar-
anteed in his profit, and was to receive a better
profit in consideration of confining his business to
the goods of the defendants.
ReOess.
Mr. Nicoll: If your Honors please: Before re-
cess I was proceeding to call the Court's attention
to some things in the record which seemed to mc to
indicate a lack of the power which is ascribed to
us by the Qovernment. One of them was this very
New England and Philadelphia deal upon which
so much stress has been laid. Your Honors will
remember thatin 1904 the defendants put into
operation in New England and Philadelphia a plan
for selling goods under which the jobber was
guaranteed in his profits. He was to receive a
better profit in consideration of confining his busi-
ness to the goods of the defendants.
It is said that the effectiveness of this plan illus-
trates the power of the defendants. But there
were two or three jobbers left in Philadelphia to
handle the so-called independent goods, and two or
three jobbers gave sufficient distribution. The
plan did not affect the retailers at all, and the re-
tailers were able to get all the.goods they wanted
Mr. Justice Harlan: Does it not grow in some
other States--the burley tobacco?
Mr. Nicoll: Burley grows now in some other
States. A great deal grows now in Virginia-al-
most as much as in Kentuckv. The claim is now
made that before the organization of the American
Tobacco Company there was great competition in
the purchase of leaf tobacco, which has been sup-
pressed as a result of its organization. But I say
that the record in this case shows that all these
tobaccos are sold in competition,
Mr. Justice Lurton : Is there anything in this
Record concerning an organization of the tobacco
planters in the black tobacco district, or the burley
district, to maintain the price of tobacco?
Mr. Nicoll: Not a word.
Mr. Justice Lurton (continuing). By reason of
the effect of these organizations and combinations?
Mr. Nicoll: There is nothing of that kind in tLa
Record.
Mr. Justice Lurton : Is there anything here that
indicates those great organizations of night riders
which are on foot for the alleged purpose of com-
pelling the planters to adhere to their contracts by
which their crops are pht in the bands of com-
mittees for the purpose of selling them? Is there
anything in this Record about that?
Mr. Nicoll : There ia not a word. There is a let-
ter (Vol. IV, p. 432) here from Mr. Duke, the
president of the American Tobacco Company, writ
ten many years ago, refusing to enter into any com-
bination or any organization of the planters; but
there is nothing on the subject that your"Honor
speaks of.
Now, I was saying that in the flue-cnred district
of Virginia much of the tobacco is sold at anctiAn.
It is brought to the markets in wagons by the
farmers. It is then thrown in loose piles, inspected
by
bit
hir
pr
th
to
to
so
ca
in
of
8
tf
ity, and in strict competition with them, other great
tobacco businesses have been built up.
The Success of Our Competitors.
The Record here shows beyond a doubt that all
businesses-such as Bloch in the scrap business and
Peper in the plug business, and ma.ny othere-have
continued to flourish during the entire growth of
these defendants. But it shows, however, something
even more important than that; and that is, that
some of the most remarkable successes in the to-
bacco trade have occurred during this very period.
I will mention three of them. The firet is the case
of the Scotten-Dillon Company, of Detroit.
I have already mentioned Mr. Scotten in discuss-
ing covenanta He had sold his business, the
Daniel Scotten Company, of Detroit, to the
Continental Tobacco Company, in 1899, giv-
ing a covenant not to re-engage in business for a
short time. When his contract expired he bought
from the Continental Tobacco Company the Detroit
factory and organized the Scotten-Dillon Tobacco
Company, with the very funds which its promoters
had received three years before from the sale of its
former business to the Continental Tobacco Com-
pany. He went into competition and has been in
competition with the American Tobacco Company
for the last ten or twelve years; and during that
period he has built up a business in smoking and
plug tobacco of from ten to twelve million pounds
a year. His stock is worth two and a half times its
par value, and it declares large and regular divi-
dends.
Another case is that of the United States Tobacco
Company, a concern which started in 1899 with the
funds which its promoters had secured upon the
sale of a former business to the Continental To-
bacco Company. The evidence in this case is that
the business of the United States Tobacco Company
I
The Government says that the victim of this
movement was Mr. Friedlander, who at that time
was one of the leading independent scrap manufac-
turers, and it put. him on the stand. He testified
that he was not at all surprised at an advance in
the clippings, because of the difficulty in securing
them; that although be did not expect they would
go higher than seventeen or eighteen cents, as a
matter of fact they had advanced to twenty-two
cents a pound. But during all this entire period of
competition, during the scrap war, his business
increased until he was making over $60,000 a year.
And this had nothing to do with his selling out
(Vol. IV, pp. 79-80).
Mr. Bloch, the leading manufacturer of scrap
tobacco, always independent of the American To-
bacco Company and in direct competition with it,
testified that he started in the scrap business in
1889, and that his business had grown both in
volume and in profits since that time, and that
during the years of this scrap war his business
had constantly increased. Although the Gtorern-
ment insists that this scrap war was an instance of
unfair competition on the part of the American To-
bacco Company, the notable fact ia that no witness
was called to complain about it. None of the man-
ufacturers who, it is said, were coerced, made any
complaint. In fact, no one of them was called, save
Mr. Friedlander, who testified that he had done a
profitable business throughout.
Mr. Puryear, of the Nashville Tobacco Works,.
enjoys the unique distinction of being the only
manufacturer who was called by the Government
to support the charge of coercion to sell on account
of the competitive methods of the Amerieank
Tobacco Company.
The Nashville Tobacco Works in the year 1904
had a brand known as Old Statesman, which was
selling in the Southern 5tates. The business was
owned
year t,
the sa
Comp:
ness o
brand
by the
fied tI
keted
tion f7
his ju
made
In f
quoter
corpo'
pany
get o
brand
was A
Amer
was }
calla
what
altho
counf
theh
plain
theA
As a
16 c(
all t
so
I
I
have no power over the raw material. On the con-
trary, they are in the power of the producers of
tobacco, who may grow it or not, as they please,
and can only be tempted to produce a quantity
suf6cient for the defendants' needs by an attractive
price. The farmer who produces tobacco is under
no obligation to grow that crop. How can he be
said to be in the power of the defendants? On the
other hand, the defendants must have tobacco or
their manufactories must close. As between the
grower and the. manufacturer of tobacco, who,
theu, has the ultimate power?
Certainly the defendants have no power over the
facilities of transporting either the raw material
or the raw product. They possess no exclusive
processes of manufacture, except such as they may
have invented or discovered for themselves, and
they have no power over the avenues of distribu-
tion. With 5,000 jobbers and 600,000 retailers in
the United States; with every retailer willing to
become a jobber if the opportunity offers; with
nothing to prevent any man, even with small cap-
ital, from becoming either a retailer.or a jobber-
how can it be said that the defendants have any
power over the avenues of distribution? The only
power they have over prices is in common with all
other traders, to fix the prices of their own manu-
factured goods. They have no power to fis the
prices of the raw materiaL Owing to another pe-
culiarity of the tobacco business, even the prices
of the manufactured goods cannot be easily
changed without great risk. This is so serious that
although the price of the raw material has steadiLy
advanced from year to year, there has been no cor-
responding increase in the price of the manufac-
tured product to the consumer. It must be remem-
bered also that the American Tobacco Company
has always had, and now has, actual competitors
in every branch of the trade, and that it is always
sesa53ss
78
has grown from year to year, and extends all over
the United States, from ocean to ocean.
But the most remarkable of all is the caae of
dchinasi Brothers. They have been in the United
States less than fifteen years; neither of them can
quite speak the English language; they went into
the cigarette business in the City of New York in
competition with the American Tobacco Company,
manufacturing certain brands of cigarettes out of
blends of grades of Turkish tobacco. They are to-
day the largest independent cigarette mannfactar-
era in the United States. The United Cigar Stores
Company handles almost as many of their cigar-
ettes as of the American Tobacco Company. They
are in the enjoyment from their business of a great
income.
Now, this evidence is so overwhelming that it
seems absolutely to dispose of the Government's
contention that the defendants have monopolized
or have attempted to monopolize the tobacco trade
or any part of it.
Power or Tendency.
Confronted with these facts, the Government
changes its position and argues that the Act is vio-
lated because the defendants have such a dominant
position in the trade that they tend to a monopoly,
or that they have the power to monopolize even if
they have not exercised it.
In the (3overnment's brief it is argued (I quote
the words) at page 99:
`P1rade and commerce in any commodity
are monopolized whenever, as the result of
concentration of competing bnsineases--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."
68685397'
IYIIIZI~i~
According to this view, a concentration of com-
peting businesses, possessing power to control
prices and smother competition, becomes a monopp
oly only when it does not occur as an incident of
orderly growth and development. If its growth and
development have been orderly it does not violate
the Act, although its power over prices and compe-
tition may be the same. Yet how can the manner
of its growth make any difference, if this is the cor
rect test? The power would be the same in either
case. A concentration of competing businesses
brought about by disorderly or illegal means would
have only the same power-no less and no more-
than its virtuous counterpart whose growth had
been orderly and legal throughout How, then,
can power over prices or competition be said to be
the test?
The Act itself says nothing about tendency or
power. These are not the things which are con-
demned by this criminal statute, which renders its
violators liable to fine and imprisonment. Can
men be convicted because they have acquired a
large business which, on account of its size, tends
to give them, for the time being, a greater control
than others Iess fortunate? Shall men suffer be
cause they have a power which they have never ea-
ercised? Are we to Ieave it to a jury to say, under
this Act, when such a concern tends in the wrong
direction? Such a construction of the statute
would lead to into2erable oppression and injustice,
and turn the administration of criminal law into a
farce. A criminal statute ought at least to plainly
point out the things which are forbidden.
But, as a matter of fact, the Record in this case
shows that the defendants have no such power as
is assigned to them by the Government, and that
the only power which they possess is the power
which large wealth, united with experience, gives
to any great concern. The defendants certainly
we have enormously increased the demand for to-
bacco; and that we have not interfered at all with
the natural law of supply and demand, upon which,
in the last analysis, the price depends. Your
Honors must keep in minds that the lands where
tobacco is grown are also available for other crops.
The farmer may grow tobacco or cotton or hemp
or grass, or he may use his land for grazing. So
that tobacco is in competition with all these other
products. Unless a farmer can get an adequate
price for tobacco he will put his land in cotton or
grass but the users of tobacco, the mannfacturers,
must have it, or their factories must close; and they
must pay the farmer a fair price for it as compared
with the price which he can get for other crops or
he will not grow it at all.
The Chief Justice : Is not' that a generalization?
Is that established in the Record?
Mr. Nico11: That is established beyond a reason
abie doubt (see Vol. II, pp. 124-5, 187; Vol. IV,
pp. 421-2, 522-3 ) .
The Chief Justice: I merely put you that ques-
tion. You spoke of the facts, and I put you that
question. I have a country in my mind where a
farmer, a very honest and straightforward farmer,
told me that 9n consequence of operations-I do
not say how, or why, or whether it came from the
price of tobacco-he had practically been ruined;
because whilst it was very pro8table to use his
land for tobacco it was not possible for him to make
a living out of his land using it for grain or for
grass; that his was essentially a tobacco copntry,
and that if you deprived him of the right to groa
his tobacco it meant ruin to that section. He may
have been mistaken; and so I ask you, does the
proof establish this generalization? 9
Mr. Nicoll: That must have been a very ez'
ceptional instance.
Thi
Mr
tiona
Th
was .
df]
tuck-
be a!
M
tion
Gra
T
chee
the
A
pra
em)
cer.
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~
yoi
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57 111 jl'$ !G I
owned by Mr. Puryear and two others. Mr. Pur-
year testified that he was in part induced to make
the sale of his business to the American Tobacco
Company in 1906 because his firm wa§ losing busi-
ness on the brand of Old Statesman to a similar
brand called Bull's Head, marketed in his section
by the American Tobacco Company. He also testi-
fied that he believed Bull's Head was being mar-
keted at 16 cents a pound, that he got his informa-
tion from grocers' salesmen, and that that price, in
his judgment, was less than the tobacco could be
made and sold for.
In further support of its charge, the Government
quotes a letter written to Nall & Williams, another
corporation in which the American Tobacco Com-
pany had an interest, advising Nall & Williams to
get out a brand in competition with one of the
brands of the Nashville Tobacco Works. This letter
was written by Mr. Dula, the Vice-President of the
American Tobacco Company. Bat no such brand
was put upon the market, and Mr. Puryear, when
called to the witness-stand, made no compiaint
whatever of the competition of Nall & Williams,
although he testified for the. Government, after the
counsel for the Government bad in his possession
the Nail & Williams' letter. He confined his com-
plaint entirely to the competition of the brand of
the American Tobacco Company called Bull's Read.
As a matter of fact, Bull's Head was not sold at.
16 cents a pound, but, aft'er taking into account
all trade discounts and rebates, it netted to the
manufacturer thirty cents a pound (Vol. IV, pp.
570-1). Mr. Moore, of Nashville, who was a part
owner with Mr. Puryear in the Nashville Tobacco
Works and its President, did not corroborate Mr.
Puryear, but testified that whatever damage had
been done to the business of the Nashville Tobacco
Works was due, not to Bull's Head, but to bad
management (Vol. IV, pp. 186-7).
[y,
I
lI
b
Y
dl
ki
0
f
li
Ij
I
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I
86
stock, the amount, of $6,700,000, which was added
to surplus. Adding the amount necessary to pay
the interest on bonds and the dividends paid on the
preferred and common stock, we find that there was
a total earning by the American Tobacco Company
during that year of $26,084,000 (some hundreds and
some cents), or substantially less than ten per
cent. on its assets.
The explanation of the fact of the large dividend
paid on the common stock is that the business has
been so conducted as to merit the confidence of the
investing public, so that much the larger part of
the investment is on a four or six per cent. basis.
But without reference to that I think it may be
safely assumed that profits of ten per cent. on the
amount invested in an enterprise are only reason-
able profits, whether the concern is large or small.
The history of the American Tobacco Company
is the history of the expansion of trade-not of its
restraint. The business structure which this Com-
pany has erected is a triumph of American intelli-
gence and industry. It is the Government's largest
taxpayer. The great pataonage which its products
have attests its popularity with the public. It has
no enemies but competitors who would rise to for-
tune, or politicians who would rise to fame, upon its
ruins. What more preposterous proposal was ever
made to this Court than that it should lend its aid
to destroy this great business, to raze to the ground
this fabric of an American industry, to drive buyers
from the markets until the tobacco rots upon the
fields, to withdraw this pioneer of commerce from
foreign marts, to injure producers, embarrass mer-
chants, annoy consumers, and destroy the slowly-
returning confidence of the financial and business
world?
I cannot believe that any such proposal will find
favor in this august tribunal, where common-sense
prevails, where reason reigns, and where prejudice
and passion play no part.
!
~
r
1
Le
e-
53
Alleged Instances of Unfair Competition.
Now, let us consider the instances of unfair com-
petition to which the Qovernment points as an evi-
dence of our actual intention to restrain trade.
One charge is that the American Snuff Company
endeavored to crush the. Byfield Snuff Company,
which was engaged in manufacturing a brand of
Wintergreen snuff in the New England district, by
introducing a brand called Checkerberry in com-
petition with Red Top of the Byfield Company.
The owner of the Byfield Company was Mr. Pear-
son, but Mr. Pearson did not come forward as a
witness to make any complaint. Instead he sent his
salesman, Mr. Choate, who complained that Check-
erberry had been sold at less than cost for the pur-
pose of driving out Red Top. It appeared, how-
ever, that during the very period when the Check-
erberry snuff was competing in this district with
the Red Top the business of the Byfield Snuff Com-
pany nearly doubled.
. In 1903, when the competition commenced, the
Byfield Company sold 110,000 pounds; in 1904,
125,000 pounds; in 1905, 130,000 pounds; in 1906,
140,000 pounds; and in 1907, 152,000 pounds. The
Byileld Snuff Company started in the year 1804.
Up to the year 1900 it had accumulated a business
of 60,000 pounds a year. After four years of com-
petition with the American Snuff Company its
business had grown to 152,000 pounds, and not a
pound, according to Mr. Choate, did it sell below
cost. (Vol. IV, pp. 313, 317-20, 511-2). Certainly
there is nothing in this transaction to justify the
charge that any injury was done to the Byfield
Company by the introduction of Checkerberry. In
fact it illustrates one of the peculiarities of the
tobacco trade, that all brands grow by competition.
The next complaint was made by Mr. Stone, a
salesman for R. P. Richardson & Company, and re-
lated to a time when he was in the employ of the
0
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ties of the defendants. The enormous Increase in
the use and consumption of tobacco. in the United
States is due to them. Of course they have had the
largest share of the return, becanse in certain lines
theirs is the largest business; but all others have
shared the general prosperity, each in his own pro-
portion.
The Government makes much of the fact that
profits have been made by the American Tobacco
Company and dividends paid almost since its orr
ganizalzon in 1889, the inference being that these
were due to restraints put upon trade by occupying
the market to the unlawful exclusion of others. No
doubt the American Tobacco Company has been a
successful concern; but is that any ground for con-
demnmg it? The question is not whether its profits
have been large, but whether they have been ob-
tained by improper or immoral advantages over
their competitors. That large profits have been
made is due to the unusual foresight~ intelligence
and activity of the defendanta-the very qualities
which the law approves. The field was open to all;
but they were the first in this country to see the
great possibilities of the brands which they ac-
quired. Their success is the result of economical
management, of business skill and the generous
employment of methods calculated to create a con-
stantly increasing demand among consumers for all
kinds of tobacco products.
It appeared in the course of the statement of the
learned Assistant Attorney-Qeneral thatin 1905 or
1906 the total assets of the American Tobacco Com-
pany were 1274,000,000. It also appears that on
this capitalization the American Tobacco Company,
during the year 1906, made, in addition to the
amounts necessary to pay interest on the outstand-
ing bonds, six per cent. upon the preferred stock
and twenty-two and a half per cent. on the common
account of the illegal and tyrannical acts of the
combination between the independent manufactur-
ers and the labor unions-a combination strong,
powerful and unscrupulous, as well as illegal un-
der the Danbury Hat case.
In this connection I will make reply to an in-
stance referred to by the Assistant Attorney-
General of a secretly controlled company. The
Assistant Attorney-General says that we organized
in I3ew Orleans the Craft Tobacco Company and
kept our relation to it secret in order to compete
with the People's Tobacco Company. It is true
that the People's Tobacco Company had started in
competition with us, and had gotten up boycotts
against our goods among the labor unions, and had
successfully excluded us from a great part of the
trade. We could not get it otherwise, so we co-
operated with Mr. Craft in the organization of this
Craft Company. What was the reault9 Before
this suit was brought the People's Tobacco Com-
pany absolutely crushed the Craft Company. The
American Tobacco Company disposed of its entire
interest; and pending this suit the rout of the Craft
Tobacco Company was completed, and it went out
of business (Vol, II, pp. 646-8).
Generally speaking, these are the evidences of the
actual intent to restrain trade with which we are
charged by the Government-the volume of our out-
put, our purchases of other plants, covenants with
respect to vendors, suppression of competition in
purchasing leaf, and the methods of competition
which I have juet.been discussing. Out of all these
the Government spells a purpose or intention to
restrain trade. But if these fail to establish its
contention-if, as a matter of fact, the history of
the birth and growth of the American Tobacco
Company, which I have just been discussing does
not disclose the actual intention to restrain trade,
then the contentlon is that, nevertheless, the neces
61
manufacturers, during this period of secret owner-
ship, were endeavoring to extend their trade by
creating prejudice against the American Tobacco
Company on the ground that it was a trust, and
they found it profitable to advertise their goods as
anti-trust goods. At the same time they undertook
to utilize to their advantage the. differences of
opinion between the labor unions and the American
Tobacco Company with respect to the open shop.
That difference was this: The American Tobacco
Company has never objected to any person because
he was a union man, and it has never prevented
any of its employes from joining the union; but at
the same time it has been unwilling that the labor
organizations should unionize its shops,ftx the rate
of wages and the hours of labor, and other matters
of that sort
Meeting on the common ground of opposition to
the American Tobacco Company, although for dif-
ferent reasons, some of the independent manufac-
tnrers and the labor unions entered into a combi-
nation or conspiracy to boycott the goods of the
American Tobacco Company, and by this illegal
means to prevent the sale of its products. It was a
very powerful and effective combination ; especially
in the sections where the labor unions were strong.
In the case of Friedlander, of Cincinnati, it was
powerful enough to destroy seventy-five per cent.
of his business over night (Vol. IV, pp. 54-6). The
combination was at its best during the years 1903
and 1904. On one occasion during that period the
Globe Tobacco Company of Detroit, a party to the
conspiracy, issued this circular:
"Organized Labor, Qreeting: Beware of
trusts. Why Patronize the Tobacco Trust?
Eternal vigilance is the price of liberty"
(Vol. II, p. 697).
Mr. Wetmore, of St. Louis, from whom we bought
S the Liggett & Meyers Company, and who afterwarda
I
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WON
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62
I
I
IV
organized the Wetmore Company, made a speech
which was printed on a card and which enjoyed a
very great circulation in his section of the country,
expressing the following sentiment:
"The people are not going to stand idly by,
to see their rights, privileges and living
swept away. Chew Wetmore's best, union-
made" (Vol. II, p. 698).
In Cincinnati, where the American Tobacco
Company had an interest in a certain scrap business
which bad been kept secret for a time, as soon as
the real ownership was discovered circulars were
provided by the independents and distributed by
the labor unions with the words on them: "Death to
the users," and marked with skull and crossbones.
The whole City of Cincinnati was flooded with these
circulars. That was the occasion when, as I say,
Mr. Friedlander's business was destroyed over
night (Vol. IV, pp. 84-6).
During all this period the American Tobacco
Company was not so much interested in keeping this
secret as the minority stockholders in the com-
panies in which they had acquired an interest A
typical instance is Mr. Pinkerton, of the Pinkerton
Tobacco Company. An examination of his testi-
mony reveals the reasons which induced him to per- ~
suade the American Tobacco Company to maintain I
secrecy. When it bought one of these concerns,it
was a very natural thing for the men who were left ,
in charge and who knew their own environments to
say, "Well, we think your interest bad better not ` ~
be known on account of the prejudice which eriste .°
in this community against trust-made goods or on ~
:,
account of the hostility of the labor organizationsl"
I am not here to make any apologies for tbese.,°,
secretly controlled companies. I contend that the jx
maintenance of secrecy was justifiable under the
circumstances and that it was made necessary on >-
S8fi8$,'~8j ~
account o
combinati-
ers and t
powerful
der the D
In this
stance rc
General
Assistant
in New (
kept our
with the
that the
competit
against c
successfi
trade. -
operated
Oraft C
this aui+
pany ab
Americf
interest
Tobaccc
of busir
Ciene'
tnal
chargec
put, on
respect
iurchs
which
the qc
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conten
the bi
Compt
not di
then t
Decree of Circuit Court Anomalous and Unauthorized.
This case, as it comes before the Court, presents
a most anomalous state of affairs. Under a statute
designated to promote trade we have a decree which
utterly forbids the entering into interstate com-
merce of the American Tobacco Company and its
allied or owned companies and properties. With
an output of 8212,000,000 in 1906 of tobacco by
those companies, a very considerable portion of
which was put into interstate commerce, you have
a decree that that Company is forbidden from
transacting any business in interstate commerce;
and of necessity the traders outside of that cor
poration, who furnish perhaps one-fourth of the
tobacco product, are to do all the business.
Does it not challenge our attention when we find
a decree is made under a statute intended to pro-
mote commerce that by necessity must absolutely
prevent it? Does it not make us challenge the cor-
rectness of an interpretation of the statute which
brings about any such result?
<'Oh, but," they suggest, "the reason that decree
is entered is not that interstate commerce to the
extent of three-fourths shall be prevented; but if
such a decree is entered, then these defendants, by
reason of the destruction of the value of their prop-
erty which ensues, will necessarily be driven to sell
their property." But does not that amount to a
punishment? Does not that amount to a decree
by the Court that they shall be punished to such
an extent by the deprivation of the use of their
property that perforce they will do something
which it is not within the power of the Court to
compel them to do, and suffer a punishment which
this Act, which is very specific in what it does by
way of puqishment, says nothing about?
58
I
I
0
i
0
V
a
0
0
0
E
i
Other evidence showed that a nephew of Mr. Par-
year's had gotten out a brand called Country Lad,
in competition with his uncle's brand, and adver-
tised it as being the same as Old Statesman. It
also appeared that Mr. Strater, another indepen-
dent manufacturer, was making a similar brand in
the same market. Both of these were sold at the
same price as Bull's Head.
Reference was made by the Assistant Attorney.
Qeneral in the course of his argument yesterday to a
letter written by Mr. Hill, the Vice-President of the
American Tobacco Company, on July 11, 1903, to
Stewart, at Rochester, N: Y., in reference to the
shipment. of Sovereign little cigars and cigarettes,
and it was cited as an instance of spying on com-
petitors. This letter was in the possession of the
Government when it called as a witness Mr. George
P. Butler, of the Butler-Butler, Incorporated, a
corporation which manufactured these. Sovereign
cigars and cigarettes. Mr. Butler made no com-
plaint of spying on the part of the American
Tobacco Company, or other unfair conduct on its
part, although lie had been for many years a com-
petitor; and he made no reference to the Sovereign
cigars or cigarettes at all.
While Mr. Butler was on the stand he was asked
this question (I am reading from the Record, VoL
III, pp. 576-7} :
"Q. In the tobacco business does there ,~.
exist at present, or has there existed, from~
your recent experience with Bntler-But)er,
"
and your previous eaperiences, a situation
which would prevent an independent manna
facturer of tobacco who knew how to make
good goods, knew how to pack them so 4e1
to hit the public taste and fancy, with suffi-~
cient working capital, is there such a condi
tion that such a manufacturer cannot eXid;
and prosper in the tobacco business?
"A. I should say that there was not I
such condition but what a man with pro
A g,
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from
trolleC
trowt)
Comp:
its tr
vogue
in 19(
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and I
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inth
comp
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eomp
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68685377
.
from the two or three jobbers who did not accept
the plan. These.defendants have but one jobber in
New York City, and he handles everybody's goods
-the American Tobacco Company's goods and
those of the independents alike
Finally the plan was abandoned, only a few
months after it. was tried-not because of its i1-
legality, but because it was a poor trade scheme,
and resulted in their geting less of the business
and their competitors more of the business in the
localities in which it was tried than they have ob-
tained under the conditions which now prevail.
There is still another thing in the record which
shows a want of power on the part of the defend-
ants to exclude others from the trade; and that is,
the conduct of the wholesalers who received special
commissions from the American Tobacco Company
on smoking tobacco, but who handled only a few of
the cigars made by the American Cigar Company,
in which the American Tobacco Company has a
large interest. Why did not the Tobacco Company
use the power which it is alleged to possess from the
payment of this inside commission to force upon
these jobbers the cigars of the American Cigar
Company? The answer is easy. There did not
exist the power to force upon the trade the kind of
cigars, or brand that the consumers did not want
The defendants would have been foolish to have at-
tempted to use any power that they had over the
jobbers in that direction. The jobbers would have
resented and snccesafully resisted any such attempt
to use such power.
The truth is that in the tobacco business only
two have the ultimate power-the farmer who will
not grow, and the consumer who will not buy.
Like the farmer, the consumer is an autocrat. In
every store, side by side with every brand manu
factured by these defendants, there are brands of
independent mannfacturers. The consumer takes
his choice. The brand that he desires will be fur-
59
talent, working capital and the luck of at-
tractively package his goods would succeed.
"Q. Do you say that after your experience
with Butler-Butler, Inc.?
"A. Yes.
"Q. Were you in any way connected with
or informed as to the affairs of the Univer-
sal Tobacco Co.?
"A. Well, I knew a great deal of them.
"Q. They didn't succeed in business, did
they?
' :4. No, sir:
"Q. Was that because of the macbina-
tions and competition of the American To-
bacco Co.?
"A. No, air."
Secretly Controlled Cumpanies.
A great deal is said by the Government about
secretly controlled companies. One would suppose
from these observations that these secretly con-
trolled companies had something to do with the
growth or development of the American Tobacco
Company, or at least had substantially increased
its trade. These companies had their greatest
vogue in 1903 and 1904. There were none of them
in 1907. There was no remarkable increase in the
business of the American Tobacco Company in 1903
and 1904, and there was no diminution in 1907.
Not only that, but there ia not one scrap of evidence
in this case that any damage was ever done to a
competitor by a secretly coRtrolled company.
I suppose that when a person buys stock in a
compaqy, there is no reason in law or in morala
which requires him to make it public. But, as we
proceed we will see that the American Tobacco
Company had good and justifiable reasons for keep-
ing their intemet or ownership secret in certain
casea.
There is spread through this record some corre-
;; spondence between the officera of the American
a
®
0
0
0
h7
93
~ may say roughly seventy-five per cent. of the mann-
facturing of other products of tobacco, excepting
cigars.
It buys the leaf in other States, and it sells the
raw product in other States. Therefore, in con-
nection with its manufacturing, it does an inter-
state commerce business in the purchasing of its
raw materials, and does an interstate commerce
business in the shape of selling its products. In
what respect does this Company differ from the
other? It is very much more in itself a manufac-
turing company, because it manufactures a very
large.percentage of the product which is sold by it
and by its allied companies.
I have seen somewhere the suggestion made that
it did not.appear in the gnight case that that com
pany bought its raw sugar outside of Pennsylvania
and that it sold its product in other States. But
I suppose that unless a man had behind him the
power of the Government, he would be rather care-
ful in suggesting to this Court that at the time of
the decision of that caie it was not thoroughly
aware of the fact that raw sugar was not raised in
the State of Pennsylvania, and that the refined
sugar was sold all through the country.
That case laid down no new doctrine. It was not
a new evolution of the will of this Court. It quoted
the antecedent cases upon which it rested which
made the broad dividing line between the manufac-
turing of a product and the sale of that product in
interstate commerce.
There is necessarily a well-defined distinction
between the manufacturing of a product and the
dealing with it in interstate commerce. _ No citizen
of a State is obliged to cross the border. No citizen
of a$tate is obliged to sell his product in inter-
state trade. He may be the owner of cotton land.
He may be the owner of wheat land. He may be
90
The mind must be rigorously directed in order
to keep up with this-
"May prohibit whatever as an efficient
cause will probably occasion, as a natural
and reasonable consequence, material ob-
atruction or hindrance to efficacious opera-
tion of its lawful will."
Few are safe if crime is to be so complex in its
definition.
"In the law of torta long experience has
compelled the doctrine that liability flows
from the efficient cause and is not confined
to that nearest to the injury. A simiiar im-
perious necessity requires acceptance of the
principle now advocated."
Again, on page 32:
"This reasoning only aeserts
power to debar those engaged in production
or manufacture from acts or transactions
the direct and necessary consequences of
which would be to nullify rules for the con-
duct of interstate commerce admittedly
within the power of Congress to prescribe."
And still further, in order better to let the per-
son who is not to sin unawares know what he must
not do, on page 52, they say :
"We do not maintain that every sort of
restraint of interstate or foreign commerce
is denounced by the Sherman Act; and cer-
tainly no such doctrine is essential to the
relief asked."
But they do not contend (and of course they
cannot, under the interpretation they put upon
the Act) that every sort of restraint upon inter-
state or foreign commerce is denounced. And yet
when we read the Act, we find these words:
"Every contract, combination in the form
of trust or otherwise is hereby
declared to be illegal."
58685409
the owner of a mine. As long as he is within that
State, and his title to those things depends simply ,
upon his ownership within the State and the State
in which he is located, it is entirely within his ;
power to agree with another man that he will not i
produce wheat or cotton. It is entirely within his :
power, so far as any Federal power to punish goes,
to burn his factories. He has the absolute control
of the production. All that is forbidden him is
that If he does put his product into the channel of
interstate commerce, he must violate none of its
laws. But there is left with him the absolute dis,
eretion of whether he will so put it or not.
That is what the Knight case decided. And that
case has stood since the decision (a period of over
fifteen years) without any suggestion by any new
legislative enactment amending it that the inter-
pretation by this Court inadequately expressed the
intention of the legislature; and it has been acted
upon in all particulars since.
If a river runs through a State, no citizen of that
State can put an obstruction in the channel of that
river. But if he has on the banks any quantity of
a product which might be put into interstate com-
merce, he is not obliged to put a penny's worth of
that product into the stream of commerce. He is
not obliged to dig channels for commerce. All that
is forbidden him is that he shall not.obstruct it.
And the Knight case, as we take it, holds that to
any extent he may within his State bargain for
manufactories and for manufacturing, whatever
may be the subsequent thing that is done with it,
with no compulsion upon him to do that thing.
There is no offense done by him in that which pre
vents him doing it.
ton or woolen or steel business than to the tobacco
business; because, if there is one thing that is shown
in this record, it is that the tobacco business is not
created by the simple expenditure of money, and
cannot be destroyed by the simple expenditure of
money. A cut of one cent in the price of sugar
might drive out small manufacturers, but a cut in
the price of tobacco could have no such effect. To-
bacco is a luxury, and men buy what they like, and
they like what they are used to.
The manufacturer, for instance, who attempted
to displace Bull Durham might spend millions of
dollars, and find, after he bad expended it, that
Bull Durham was stronger than ever before. A man
who smokes Bull Durham pays but 8ve cents a
package. It is exactly what he wants, he has been
smoking it constantly, and he prefers to go right on
getting the size package he is used to, of the
identical goods he is used to, and paying the same
price he is used to paying. 8o that the aagnment,
unreasonable as it is, that these defendants ought
to be condemned because of their wealth and the
volume of their business, has less application to the
tobacco business than to any other conceivable busi-
ness. ~
There is still one thing shown by this Record
which seema to me of extraordinary importance,
and that is, that during the seventeen years which
have elapsed since the organization of the American
Tobacco Company, everyone connected with the to-
bacco business haa prospered. The producers of to-
bacco have been getting more for their crops; every
independent manufacturer has increased his busi-
ness; new manufacturers have entered the field and
made fortunes; jobbers and retailers have increased
their sales; labor has been steadily employed at in-
creased wages; and the consumers of tobacco now
have a greater variety of better products at less
prices. This extraordinary result, for extraor-
dinary it is, has been brought about by the activi-
87
Onal Argument of John 0. Johnson,
Esq., January 10, 1911. `
Mr. Johnson: May it please the Court:
It is hardly necessary to discuss the Wilson Act
That deals simply with importations and with com-
binations of importera I refer to it only because
of the very extraordinary new rule of interpreta-
tion which the learned Assistant Attorney-General
invoked. He says: "I quote the Wilson Act,
which comes years after the Sherman Act, because
it has broader words of prohibition in It; and
therefore you mnst read the first Act by the light
of the later Act, which includes those words, in
order to get at the legislative intent."
I always supposed that the rule of interpreta-
tion was this: That if I found the embodiment
of the legislative will in certain words which meant
one thing, and later found that there was a differ
ent and a later statute which embodied an entirely
different and broader thing, the presumption to be
drawn therefrom was that the original Act did not
cover what was later put in the last Act In the
Wilson Act you find, boldly inserted, words which
the learned Assistant Attorney-General infers
from the other statute, which contains nothing of
the sort. It uses the word "competition"; and it is
leveled at combinations intended to operate in re-
straint of lawful trade, or to increase the market
price, in the United States of imported articles.
If that was the legislative will, why, when the
Sherman Act was passed, were not words like that
inserted? Why should a man be punished by an
Act which must be interpreted, according to this
new code of interpretation, by the light of a later
manifested legislative will, manifestdd by other
Acts?
104
advance of prices of the raw product. If they
are punished where they interfere by monopolizing,
by unlawfully excluding others from trade, you can
do that; and that is not a work of destruction, but
a work of supervision.
In this case, therefore, we have this situation of
affairs presented: The Government makes a defini-
tion of the Act which leads to a remedy that is '
destructive of the purpose of the Act. It makes
a definition of the Act which is not to bee gathered
from it. It makes a definition which restricts the
application of the Act. And, therefore, we submit
that all that is punished, and all that is meant to
be punished, by this Act, is that sort of restraint
of trade which is known to the common law; and
that the monopolizing which is punished is the
excluding of others from the use of their property
by unlawful means.
Mr. Justice McKenna: Mr. Johnson, I have for-
gotten-have you on your first brief a reference to
the debate from which you read in your argument?
Mr. Johnson: Yes; it is in one of the briefs.
Mr. Wickersham: You will find it in the printed
argument of the Attorney-General.
102
vidual or a corporation. It is prohibited to any
person to monopolize or to attempt to monopolize.
And the Act has in it its own dictionary; by which
it expresses that the word "person" is meant to
include "person or corporation"; and, therefore,
whatever this monopolizing which is illegal is, it
is something which is just as bad in the case of a
person or of a corporation.
It is not the securing of a big part of the produc-
tion which is forbidden by the Act. It may be
ever so large. There is no word used in connection
with largeness. But a word is used which, as in
the first section, throws the greatest light upon the
subject-to wit, the word "every" before "re-
straint." The words used here are, "any attempt
to monopolize."
Necessarily if there is a statute which forbids
the monopolization of any part of the trade, and if
that means the securing of any part of competitive
trade, you have excluded every person from making.
a transaction which will secure any part of the
competitive trade. Any man who buys a piece of
goods to that extent monopolizes some. part of
the trade. We, therefore, must, in dealing with
that statute which forbids the attempt to monopo-
lize any part of it, reach some construction which
carries with it the idea of the word "exclusion";
because otherwise no competitor could purchase
another, and there could be no consolidation of any
sort.
That drives us back to the common-law defini-
tion. The common-law definition carries with it the
idea of exclusion. It means to punish, and neces-
sarily must mean to punish, an activity-as, for
instance, the doing of something which is made
illegal because it gives to the person who has prop-
erty, by excluding others from the enjoyment of
their property, an advantage which he otherwise
b8685421
House and the other and accepted in conference
meetings, was finally made to stand as the legis-
lative will upon that subject-made to stand with-
out any amendment at all. Under those circum-
stances, where the Act is the emanation from the
mind of one person, we may get some information
concerning its intent. And during the whole of the
debates Senator Edmunds was the one who stood
by to explain the meaning.of the Act.
Senator Edmunds said, when asked the meaning
of the word "monopolizing":
"'Monopolizing' has a meaning which in-
dicates some attempt by the monopolist to
impede competition, to prevent others from
having an equal opportunity with himself to
engage in the particular business sought to
be monopolized."
And Senator Hoar said:
"The sole engrossing to a man's self by means
which prevent others from engaging in fair com-
petition with him"-such monopoly was punishable
at common law.
You have both those definitions including the
words "excluding others from carrying on their
trade." Let us see whether it is necessary to carry
out that construction.
In the first place, the second section is to be
read in connection with the first section, and one
to a certain extent illustrates the meaning of the
other. The monopolizing clause is not one of the
greatest importance in the Act, because in the first
place it is not made applicable to territories; and
in the next place because the punishment for the
transportation of the product of the illegal com-
bination by seizure of the property in course of
transportation is not applied to it. The thing aimed
at is the same whether it is applicable to an iadi-
100
ities case. In the Northern Securities case, in the
first instance, we were dealing with a. public service
corporation which had a duty to compete, and which
by putting itself beyond the power of competing was
denying the discharge of a public duty. There be-
ing no duty to compete on the part of private cor-
porations, no such consequences can result from
their non-competition. Besides that, what was done
in that case was illegal under the Minnesota law, in
which the courts were located. There was, there-
fore, no intrastate trade interfered with, because
the intrastate trade could not be done in violation
of the Minnesota law. And in addition to that,
there was the mere holding, as was held, as a cus-
todian for the purpose of accomplishing an illegal
purpose.
Monopolizing.
The section of the Act which this Court has not
dealt with is the second section, the monopolizing
clause; and the proposition is that the monopolizing
or attempt to monopolize which is condemned is one
which includes more than acquisition, however ex-
tensive-that is, the exclusion of others from trade
by means of the doing of an illegal act
Ordinarily the chatter of legislative debates by
those who intrude themselves in it merely for the
purpose of demonstrating their existence may not
help us much. But in this case we have a very ex-
ceptional position. This statute was introduced by
Mr. Sherman, and very soon it was developed that
there were several constitutional slip-knots in the
statute as he drafted it. After a very considerable
amount of debate, in which a very considerable
amount of acumen and intelligence was displayed,
it was finally turned over to the late Senator Hoar
to draft the Act. He drafted the Act which, after
a great many amendments that were offered in one
58685419
man who is in trade may become too old, or he
may die, or he may become tired of his trade. And
if you forbid acquisition, the inevitable result is
that you punish two people: You punish the ac-
quisitor by preventingg him from acquiring; but
you also punish the man who has a right of prop-
erty (which includes within it the right to sell)
by refusingg to permit him to sell. Or you may have
a man who, in order to build up a business to com-
pete in foreign trade, may find that unless he does
a business of a certain magnitude he will not be
able to introduce the economies that will enable
him successfully to compete. If he-cannot acquire
those properties, you necessarily prevent him, not
from the competition within his own country, but
from a bett'er competition in the country beyond-
the foreign country.
No Duty of Competition on Private Traders.
The next proposition is that there is no duty on
the part of private trading companies or manu-
facturing companies to compete-no prohibition
against their agreement not to compete. If there is
no competition, as the result of acquisition, the Act
is not violated.
The legislature cannotcompel a man to compete.
He may transact his business according to his own
notions without being obliged to compete with any-
one.else. If he has a business which belongs to him
(as many of these businesses belonged to the people
who sold), and it is not to his interest to compete,
you cannot compel him to do it. If he finds that he
wishes to sell his business, and if the result of his
selling the business is that there is no longer a com-
petition between the two peraons who formerly were
independent, what is that but the necessary result
of the acquisition of the property? If there is no
6868541'7
nished him by the retailer, because of the risk of
losing the customer's busineee. The brand . that
the retailer wants will be furnished by the jobber-r
because of the risk of losing the retailer's trade.
Bo, after all, there euets no power on the part of
these defendants to oppress the tobaccoconsuming
public. They may fix the prices, to be sure, but
only of their own product And, if the consnmer
feels that he is being imposed upon, that his attach-
ment for a particular brand is being presumed
upon, that its quality is going down or its price
going up, he has the remedy in his own hands.
The only power that these defendants poesess is
the power that is inherent in wealth. Are they to
be banished from trade on that account? This
theory of the Government would exclude a moder-
ately rich man from any participation in a trade
the volume of which is small, and a very rich man
from any trade at all.
Of course, these defendants could be of injury to
competing manufacturers by committing the folly
of spending their surplus in the purchase, at exor-
bitant prices, of all tobacco leaf. And in the same
way they could injure the manufacturer of cotton
by buying all the cotton. And in just the same
way-if they are as wealthy as they are reputed to
be-Mr. Rockefeller or Mr. Carnegie could do the
same thing as regards the manufacture of either
cotton or tobacco.
Are the rich, on account of this inherent power,
to be forbidden to exist?-rich corporations to be
dissolved? These defendants could possibly do a.
great injury to the business of Bcotten-Diiion and
other competing manufacturers, by making the
same sort of goods and giving them away. But
their power is sufficient to do even greater injury
to the manufacturer of cotton goods, or woolen
goods, or steel, by using their money in making and
giving away these articiee.
I say they could do a greater injury to the cot-
rought about by a company, because it has a
;e amount of property, buying the property of
ers.
Acquisitions Not Forbidden.
_'he next proposition is that the actual acquisi-
n of property not charged witb a public use is
; a combination, contract, or conspiracy in re-
aint of trade within the meaning of the Act.
Vhat, in the first place, constitutes an acquisi-
n? And in the second place, are there any words
the Act looking to its prohibition?
In this case we really acquire the property; and
itt property consists, to a very large extent, of
nds, trade-marks. The value-the very great
ue, perhaps-of the holdings of this Company
in that thing which is purely built up as the
d will of the man who holds the brand and sells
And why may he not deal with that?
There are no words in the Act that look to the
nishment of acquisition. I3ow easy would it
ve been for Congress, if it meant to forbid that,
have said so? And why should they have used
,rds which had in common parlance an entirely
:Ierent meaning?
Acquisition was not condemned. If it was, this
xte of affairs would result: Competition is said
be the rule of trade. The necessary result of
mpetition is destruction. The very purpose of
mpetitors is that each competitor is desiring to
ke way from the other, and carry to himself (of
urse he must do it by legitimate means) the prop-
ty of the other. But as the result of that compe-
Jon one may go to the wall; and as the result of
at going to the wall the other may be left in pos-
ssion of the whole trade. Or, as the result of
at competition, one of the men may find it no
nger profitable to carry on his business. Or a
105
Oral Argavnent of dunlus Parker,
Esq., January 11, 1911.
Mr. Parker: May it please your Honors, as stated
by the Attorney-qeneral, yesterday afternoon Mr.
Johnson was prevented by a sudden, though, I am
glad to say, slight and temporary indisposition,
from completing his argument. I am not here to
fill up the defendants' time, but Mr. Johnson not
being able on that account to be present in court
to-day has asked me, with the permission of the
Court, to present for him to the Court the further
views that he was thus unable to present. I am glad
to be able to call to the Court's attention the fact
that these defendants filed after the first argument
of this case,last January, a stenographic report of
Mr. Johnson's argument made at that time, and that
the Court will find that argument still in the
Record.
Now, if your Honors please, Professor Clark of
Columbia, a distinguished writer on economics, has
said:
"There are three things which the people
in their thought and speech jumble together,
and even attack without any discrimination.
They are, first, capital as such; secondly,
centralization; and, thirdly, monopoly."
The confusion in the public mind which Professor
Clark thus reprobates is altogether illustrated in
the attitude of the Government, both in its brief and
in the oral argument of the Assistant Attorney-
General. They not only confuse effective and
economical centralization of production with
monopolizing, but they have confused the power
that is inherent in all wealth with the power that
monopolies exercise, and so "jumble together" sim-
ple capital and its use, and monopolizing.
This conftision of thought with respect to
Should we not pause when we find an interpre-
tation put upon the statute by the'(iovernment
which, because of the interpretation, obliges them
as a necessary Consequence to say that they do not
claim that every restraint is illegal, when we find
that statute without a word of exception, in the
clearest possible language, providing that every
restraint and combination and conspiracy in re-
straint of trade is illegal?
Again, on page 99, as a head-line, we find in-
serted this qualification: "Trade and commerce in any commodity
are monopolized whenever as the result of
the concentration of competing bueineases-
not occurring as an incident to the orderly
growth and development of one of them"-
so and so occurs.
Our construction of this statute is one which
puts upon every word of the statute a meaning,
and which does not excise from the statute a word
that is put In with a most intense ezpreasion of
force-to wit, the word "every." And where do
they find in the statute the authority for the fn-
sertion of the word "material"? Some of the great-
est legal intellects that have ever figured at the
American bar, and graced it by their learning,
struggled in this Court to induce it to reach a con-
clusion that it must insert before the word `1re
straint" the word "reasonable," and make those
unexcepting words read according to what they
said was a reasonable qualification"a reasonable
restraint" This Court said: "No! the statute says
that every restraint of trade is illegal, and we are
not permitted to remake the statute, or to insert
anything else!' And if they would not permit the
Insertion of the word "reasonable," upon what
power can we rest the exclusion from the statute
in this case of the word "every"? -
In the statute there are no such words as "ma-
Government's Vague and Strained Interpretation.
The trouble with the Government's interpreta-
tion is that it fails to disclose with sufficient clear
nees the offense condemned, and it requires the in-
sertion of words to save the interpretation from
self-destruction. And under that I have this to
say:
This is a criminal statute. It is of the very ea-
aence of the criminal law that before a man can
be condemned as a criminal, there shall be clearly
defined by the body which enacts the law the
offense which, if he be guilty of i4 shall inflict
upon him the punishment. In this case the Gov-
ernment is obliged (I will quote from their brief
in a few moments) to use words which are not in
the Act, in order in the first place to give it the
meaning that they claim; and in the next place, in
order to save it from the results of that meaning.
This very able brief is the result of; a contempla-
tion of the deficiencies, perhaps, of the earlier
brief. It is the last effort to express something
that will meet with jadicial commendation. And
this is what they say concerning this subject on
page 22 of their brief:
"In order to satisfy the requirements of a rea-
sonable riecessity, there must be a certain nearness
of relationship between what the statute directly
strikes and interstate or foreign commerce which
is probably not susceptible of rigorous definition.
Mere indirect, incidental or remote effect on com-
merce is not sufficient; but whatever, as a natural
and probable consequence, will occasion material
hindrance to the efficacious operation of the lawful
will of Congress in reference thereto is near
enough.>,
On page 31 they try again:
"We submit that under the power granted
by the commerce clause, Congress may pro-
hibit whatever"-
duty on the part of A'and B to compete, then if A
buys B or B buys A there is no violation of any law
because the result of the purchase is that there ie
no competition, because there was no duty upon
which that competition should rest.
No Acquisition Here to Restrain Trade.
The next proposition is that in the present case
the fact is that the acquisition was not for the pur-
pose of destroying or restraining trade, but.to In-
crease that of the acquisitors. The purpose was ac-
complished, and trade itself was increased.
My colleague has illustrated that and proven it
by his argument The petition that was filed in this
case was fall of averments of the doing of all sorts
of illegal acts. When the Government came to
prove those averments, they proved none of them.
The Court below finds that they did not prove them.
But we are told by the learned Assistant Attorney-
General: "It was not necessary for me to prove
those things. I did not want to injure people by
calling them to testify in that matter." But where
an averment of fact is made, where a man is accused
of guilt, and it is said that there are persons who
might prove that guilt, it will not do for him to
say: "I will not call the persons out of regard for
their feelings." Nor will it do to say, as was said
here, that they did not prove it because the wit-
nesses that they called did not tell the truth. There
was no contradiction of the testimony of those wit-
nesses; and there being no contradiction.of their
testimony, and there being no proof offered concern-
ing the truthfulness of these averments, they neces-
sarily failed.
The Northern Securities Case.
Then I wish to call the attention of the Court to
the difference between this and the Northern Secur-
jor portion." There are no such words as "the
necessary consequence will be a material hin-
drance." Necessarily any words that make the
condemnation of the statute rest upon the Act ac-
cording to its after-conaequencea, as to whether the
Act does thereafter materially restrain or not,
must be wrong; because whatever is forbidden is
forbidden regardless of its consequences.
The Knight Case Rules This Case.
Therefore, having called your attention to the
construction and the qualification of the construc-
tion resting upon nothing, let us proceed with a
further consideration of the Act. And the next
matter that I wish to discuss is that the Knight
case rules the present case.
What.was the Knight case? There was a sugar-
refining company which was in possession of re-
fineries and of sixty per cent. of the refining and
trade in refined sugar in the United States. It ac-
quired the shares of stock (paying for the same in
its own shares of stock) of concerns representing
thirty-sia per cent. more of the refined sugar prod-
uct in the United States. And it, therefore, was
in the possession, by virtue of its acquisition of
those shares, of ninety-six per cent, of the buffiness.
It was engaged in buying the raw sugar, and it
was also engaged in selling its product in other
States. The American Tobacco Company, or the
original Company, formed before the Sherman Act,
was a Company which at the time of the passage
of the Sherman Act was in the pos.Mn ion of nearly
ninety-seven per cent. of the cigarette manufactur-
ing industry in the United 8tates. From time to
time it acquired very largely properties, ocearaon-
ally shares of stock, so that it is now in the pos-
session of cigarette manufacturing to an extent of
about seventy-three per cent. as against ninety-
seven per cent. that it originally owned, and we
58685411
)m thing; and so on until these investments had pnt.
In him in a position.where he controlled. Would you
en say that was the potentiality of money or the exer-
en cise of that potentiality?
se Mr. Parker: I should say that, up to that point,
in it is the mere potentiality of money.
The Chief Justice: Of course that proposition,
g- then, you must maintain in order to maintain the
is premise that you laid down in your argument when
ir you started.
r Mr. Parker: I maintain that that, so far as your
A Honor has stated it, is the mere potentiality of
e money-a potentiality that was inherent in the very
; money itself.
e The Chief Justice: A man may have money in a
e strong-box; but I am putting to you a case where
d he has gone into that strong-box. He has taken the
.s box out of the safedeposit vault, where he. had the
U- money, the conserved power-what we may call the
rs energy-and then he has gone out and put a portion
of that energy here, and he has taken a portion of
? that energy and put. it there, and has taken a portion
ir ~ of that energy and put it there, where the inevitable
deduction and result of placing it in those things
was to bring about a result wholly different and
more. effective upon the rights of parties than that
.e a which would have existed had the money remained
in the strong-bos- Your proposition is that that is
I 0 mere power?
Mr. Parker: That is mere power, yet; because,
if your Honor please (and your Honor's question
strongly illustrates it), if it is a valid and sound
e j argument that the mere possession of wealth and
the power that that gives is to operate to keep men
from commerce, then the rich man cannot go into
i commerce but at his peril; then the rich man must
leave his money uninvested, or distribute it in such
a way that he controls nothing. If your Honor
please, perhaps (though I do not admit it) Con-
familiar. They used the words which to every mind
had a meaning to it, the words "restraint of trade."
And therefore to hold that under that appellation
they meant in any way to deal with a transaction
of buying and selling, or to deal with anything
that never before had come within the category of
restraint of trade, is to give to them a meaning not
justified by any language which they have used.
It is said that trusts were expressly prohibited
by that Act, which is perfectly true. A combina-
tion in the form of trust was made illegal. But
what was that combination in the form of trust?
It was where separate ownerships, still maintained
as separate ownerships, were attempted to be
merged, not in the title but in the management,
so that independent persons were controlled by the
arrangement that was made, and restricted in doing
their business at their own will.
They say: "If you can introduce in place of that
a combination which you call a holding company,
that is doing precisely the same thing as was done
by these trusts." But it is not. The trusc never
dealt with the title. The holding company changes
the title. In the case of the trust there were
separate interests, and each will was coerced by
the combination. In the case of the holding com-
pany you have a union of the interests; and the
man who holds in that company is interested in
the company itself doing the best it can in order
to promote its interests and its trade.
But you have in this case no holding company.
It is not necessary for us, for any purposes involved
here, to have the holding company defined. This
is a company which buys the properties, which to
an enormous percentage manufacture~ itself and
deals in trade. And you are asked to say that
under a statute which uses no other words than
"restraint of trade," a criminal restraint of trade
E
The next
tion of prop
not a combi
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tion? And
in the Act 1
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that proper
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e
The Chief Justice: Then your theoretical defini-
tion with which you started would be wrong?
Mr. Parker: You go further in the question put
by Mr. Justice Holmes. You have made that the
exclusion of others by the very act of purchase.
The Chief Justice: That is the very question
that I put you.
Mr. Parker: Then, if it goes to that extent, if it
takes the form of the question frequently pre-
sented, about the purchase of all the coal mines,
then I will say that it is monopolistic, and against
the spirit of all anti-trust law.
The Chief Justice: That is the very question I
asked you-
Mr. Justice DIcKenna: That is, so long as there
is no wrong exclusion of anybody else?
AIr. Parker : There is a wrong exclusion. There
is the exclusion in the very purchase.
Mr. Justice Mc%enna: Not exclusion, of course,
if somebody else could not buy it. A man could
go out and buy all the coal mines in the world,
giving the price that is dema.nded, without ex-
cluding anybody else or using any wrong toward
anybody else. Do you call that monopoly?
3Ir. Parker: I call it monopoly as an economic
condition, and against the spirit of the anti-trust
laws, not because the man has at the time all the
trade in the commodity, but because of the nature
of the commodity his very purchase has excluded
others. If we are to discuss questions of law and '
constitutional authority, I conceive that very dif-
ferent considerations apply; but so far as economic
conditions are concerned, a man who, by his pur-
chase, considering the nature of the commodity,
excludes the possibility of competition, violates the
spirit of the anti-trust laws, and violates the eco-
nomic law against monopoly.
Now, if your Honors please, this Record shows
no purchase of a monopolistic kind. This Record
Restraint of Trade Used in no New or Enlarged
Sense.
The next proposition is that the Act discloses ao
intent to enlarge the meaning of the words ure-
straint of trade," or to create any new offense.
At common law there was a very large class of
i i contracts that, because they were against public
policy, were not enforcible. There would be at
common law conspiracies which would be puniah-
t-- able because they got into the domain of crime.
There was no Federal criminal common law. The
purpose of this statute was to apply within the
domain of the IInited States, to the extent it had
~ jurisdiction over interstate commerce, the prin-
ciples of the common law; to make those contracts
which were not enforcible at common Iaw illegal,
and to make the conspiracies which existed at com-
mon law illegal. But bear in mind the situation
when this Act was passed:
Congress was necessarily aware of the fact that
in all the States there were being developed statutes
anthorlzing a great increase in the capital which
any corporations might indulge in. It was thor-
oughly aware of the fact that consolidations of
those capitals were being made under the laws of
the States. It was thoroughly aware of the fact
that property was being bought and was being sold.
It manifested in no way any disposition to deal with
those things but, on the contrary, conflned itself
to the words "combinations in restraint of trade."
There were at that time contracts which it made
illegal by which a man restrained himself from the
exercise of his own industry; by which men under
took by combination or contract to control pricea
and to regulate output. There were agreements
in which in various ways they did that which was
improper, and which waa now penalized. But they
used. the words with which the common law was
competition-actual or potential. Is that what
your Honor desired me to repeat?
Mr. Justice Mcgenna: Yes. Then the exclusion
of others is your essential definition of that power?
Mr. Parker: Yes, sir; and the exclusiom must
follow, or the attempt to exclude must follow be
fore that power is inherently bad.
The Chief Justice: You started out with your
first proposition, and then you immediately divert-
ed from that by discussing the question of the
State, and power, and what the legislation has
been. I was asking you as an abstraction. Now,
I ask you the question, if a man has one hundred
millions of dollars, and he takes that one hundred
millions of dollars and invests it in various things
having a relation to each other, or a connection
with each other, in such a way that no common
sense human mind can look at that situation with-
out saying that by the act of this man, in taking
his money out of his strong box and putting it here
and there and there, that all human competition is
impossible-does not that bring it right into the
position of potentiality which you state in the prop-
osition that you have just announced?
Mr. Parker: I think not, your Honor. I think,
if your Honor means that those acquisitions have
bad the intent and effect of making competition im-
possible-
The Chief Justice: I certainly say that in my
question. I say "have the effect."
Mr. Parker: Then, I still do not believe so. . The
case your Honor speaks of is not our case, and
while that state of facts is not in this Record, I
would say that it involves, to my mind, a disre-
gard of constitutional requirements. I do not bee lieve that Congress has jurisdiction over, and can
make criminal the aims, purposes, intentions or
effect of persons in the acquisition and contr.ol of
lit
draw the line between weak, ineffective, non-
injurious competition, and the severity of competi-
tion?
Mr. Justice McBenna: Will you give an illus-
tration, if you can do so without diverting from
your argument, bf what you consider tortious?
Mr. Parker : Yes, sir. I conceive, if your Honors
please, that a typical case of monopolizing under
this second section is the attempt to corner all of
the raw material, gone into for the purpose of or
having the eff5ct of thus excluding others.
Mr. Justice Hughes: Do you mean by that the
mere purchase of all the raw material?
Mr. Parker: No, sir; I mean to say that when you
come to this second section, in any attempt to
monopolize, intent is an element; and it is the only
section in which intent is an element I think when
a trader sets out with the intent to exclude a com-
petitor by purchasing all the raw material, that
there is an exclusion by engrossing, and engrossing
is illegal at common law. Moreover, your Honors,
I think any of the methods condemned by the com-
mon law, fraud, deceit, coercion, are violative of this
second section. I believe, moreover-and it may be
said more certainly than in the illnstration given by
Mr. Justice Holmes-I believe that a control of all
of the avenues of distribution and the exercise of
that control to exclude the product of competitors,
is violative of this second section. I believe that the
attempt to exclude competitors from means of dis-
tribution by securing illegal rates from common car-
riers, and the securing them, violating the Interstate
Commerce Act, is violative of the second section of
the Act. I believe that the dozen and one ways that,
at common law or by other statute, are denounced
as criminal or tortious, being resorted to for the
purpose of excluding others, constitute an attempt
to monopolize under the second section of this law.
Mr. Justice Lurton : It is your contention, then,
119
against the Sherman Act, which would have been
favored at. common law; no contract or quasi-con-
tract has been condemned that would have been
enforcible at common law.
We contend, then, that the Sherman law applies
to interstate trade, and to contracts, arrangements
and conduct directly affecting interstate trade, the
principles of the common law-making criminal
and subject to Federal prosecution-if direct in
their effect on interstate trade-some things that
were criminal at common law, and some things
that were forbidden at common law only in the
sense that contracts for the doing of them were
unenforcible; giving to Federal Courts jurisdiction
in equity to prevent the things from being done
which if done would be criminal; and giving an
easy and tempting action at law to those who are
injured by these things.
Surely a statute which applies to interstate trade
only the principles of the common law, already ap-
plicable to all intrastate or local trade, and for
centuries believed sufflcient to protect such trade
against noxious combinations or restraints, ought
not to be called radical or revolutionary.
Nor do we conceive that this conception of the
law makes it insignificant. The statute has its
origin not in any supposed inefficiency of the com-
mon law, but because it was doubtful whether these
principles extended to interstate trade and there
are no federal common law crimes; and, if your
Honors please, almost all vital and well-considered
statutes have their principal utility in the appli-
cation of effective remedies to common law wrongs.
In our view there is no decision of this Court in-
consistent with our conception of the common law;
but under this law there have been decisions of
this Court which prevented competing railway
companies from agreeing upon rates to be charged
middleman between the producers who form
it and ourselves; so that hereafter, instead
of our purchasing the tobacco we need direct
from the farmers, we are to purchase it from
this association, or corporation. So far, we
have no objection to the plan, and have no
right to object. If the farmers deem it to
their interest to associate themselves into an
organization, of whatever sort, it would be
entirely satisfactory to us to deal with such
organization as freely and under the same
conditions as we would deal with any other
person or corporation which had tobacco we
desired to acquire; and we would desire that
relations as frank and cordial should exist
between us and that organization as we now
desire between ourselves and the farmers
themselves."
Mr. Justice Holmes: What are you reading?
Mr. Parker: I am reading, as the only evidence in
this Record of the eaistence of the organization of
the farmers, a letter written by the President of the
American Tobacco Company to the President of
the Burley Tobacco Society,.in 1903.
If your Honors please, I do not desire to read
further from that letter, but I do earnestly com-
mend it. to your Honors' attention, as stating truly,
accurately and fairly the relations of this company
to the producers of tobacco.
The Chief Justice asked a question that I desire
to answer. He asked whether the market quota-
tions that are in evidence did not show the market
from day to day, and if it were not, therefore, possi-
ble that the defendants acquired their tobacco when
the market was low, and that the "high water"
points were only nominal, not helping the farmers,
and not hurting the Tobacco Company.
The Chief Justice: I asked that because I wanted
to Snd out whether counsel might not be in error.
property which the States of their residence per-
mit
The Chief Justice: Pardon me. My question
was not intended to raise any question of constitu-
tional power. That is another thing. You started
out by making an economic proposition.
Mr. Parker: Yes.
The Cbief Justice: Whether a particular thing
accomplishes a particular result; and you stated a
theoretical proposition. My question addreeses itr
self to that Now, you immediately turn to an
argument of constitutional power. That is another
thing. I was not considering any question of con-
stitutional power. That is further along.
Mr. Parker: Then I still answer, from an eco-
nomic standpoint, that still, so far as you have
stated it, it is potential.
Mr. Justice Holmes: Would not that depend
more on what the subject-matter of the purchase
was? If a man purchased the only mine there was
of a certain material in the world you .would, per-
haps, admit that he had a monopoly.
Mr. Parker: Yes.
Mr. Justice Holmes: Wait a minute. But you
would say that if he purchased simply all the to-
bacco in the world, but left it open to other people,
there being opportunities and he not t interfering
with those opportunities of other people to raise
more if they were so minded-you would say, ye4
that the monopoly was not achieved?
Mr. Parker: I would say so; and the reason I
did not say it, if I may be permitted to say so, was
that I thought.the Chief Justice's question put out
of consideration the consideration of the facts in
the particular matter. I conceive, of course, that
if a person uses his money to acquire all of the
possible supply of a raw material, or a product,
so that competition is impossible, of course there
is an economic monopoly.
68685429
The C
tion wit7
Mr. P
by Mr. -
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Now
no pul
gress could forbid any man worth more than a
given amount of money from engaging in interstate
commerce, Congress, perhaps (though I do not
admit it), might forbid a corporation with a larger
capital than a fixed maximum engaging in trade
between the States; but Congress has. not done
so. Not only has Congress not attempted to limit
the wealth of those engaged in interstate trade, but
there is no tendency on the part of the States in '
that direction. With respect to the formation of
corporations, the power of the States is plenary,
and only four States fix a maximum limit of cap-
ital stock for manufacturing corporations formed
under their laws: Every other than these four
States, including some whose anti-trust laws are
most drastic, permit the incorporation and trading,
and active trading, of companies of unlimited mil-
lions with all the power that that wealth gives.
Now, if your Honor please, what is the power
that the courts and economists have condemned as
an incident of monopolies, if it is not in its last
analysis the simple and inherent power of accumu-
lated and active capital? It is, in our judgment, l
the power to exploit and oppress the public that
belongs to him who has excluded others from the
trade, or for whose benefit others have been ex-
cluded from the trade, and who may treat the con-
suming public as he likes, without fear to him, and
without hope to the public, of competition-actual
or potential.
Mr. Justice McKenna: Will you repeat that?
Mr. Parker: According to our conception, the
power that has been denounced as inci(lental to
monopolies is the power to exploit and oppress the
public that belongs to him who has excluded others
from the trade or for whose benefit others have
been excluded from the trade, and who, therefore,
may treat the consuming public as he likes, with-
out fear to him, and without hope to the public, of
586854Z'7
competition-
your Honor
Mr. Justic
of othersis:
Mr. Parh
follow, or t
fore that p(
The Chie
first propos
ed from tl
State, and
been. I w
I ask you
millions of
millions of
having a
with each
sense hum
out sayin,(
his money
and there
impoesib
position
osition t
Mr. P
if your
had the
possible
The (
questioi
Mr.]
case y(
while t
would
gard o;
lieve tl
make
effect
would not possess. Therefore, if he builds up his .
trade by rebates, or if in any way he monopolizes,
or if in any way he interferes with others in the
proper conduct of their trade-if he does any illegal
act, for that he is punished.
The Remedy Applied Destroys the Object of
the Act
Then the remedy which is accorded, being the
only one which can be applied, destroys the object
accomplished by the Act. And thereforee the
failure to prescribe a remedy which does not induce
such destruction is a demonstration of the lack
of intent so to punish.
We have shown the effect of the relief granted
by the Court below. The Act prescribes its pun-
ishment. It prescribes an indictment; it prescribes
an injunction; it prescribes a three-fold damage.
The Court has prescribed an additionall punishment
-to wit, the destruction of the value of the prop-
erty.
If, therefore, when you come to apply the remedy,
you find that the only remedy which you can apply
is one.that is necessarily destructive of the pur-
pose of the Act, does it not require us to chal-
lenge the correctness of the interpretation by which
that remedy alone could apply?
In these cases it is not the fact of the great
combinations which menaces trade. It is the abuses
which may be occasioned by them; and it is those
abuses which are intended to be punished by the.
word "monopolizing."
These great combinations are necessary. They
are the economic necessity of the age. By means
of them the cost of production is cheapened. Priees,
by reason of these great combinations, as in the
present case, do not advance pari pasau with the
suited in this: From the potentiality which arises
from the fact that in every silver mine in the world
there is a vast amount of ore which has been worked
with the appliances which then existed, as be then
described them, and it stands there now looking
every man in the face in the whole world; that with
the present means of extracting ore, that vast body
of ore can be worked at.a profit at such a price that
at any moment when the price goes np that ore in-
stead of being dormant will flow into the channels
of money, and therefore it keeps the price down.
Now, I put that by way of illustration. It seems to
me that your statements have departed from your
first proposition, but I will not discuss that. If a
man, having vast sums of money, has so distributed
that money by investment, so that the whole world
may know it, as to absolutely exert the potentiality
of excluding everybody else, and with the certainty
to everybody else that he will be destroyed if he
takes a step-would that be a monopoly in your defi-
nition of the word "monopoly," as you laid it down
at the start?
Mr. Parker: Does your Honor's question call
for an answer on the economic phase?
The Chief Justice: No; I mean under this law.
Mr. Parker: Under this law? No, your Honor.
The Chief Justice: You say no. Why? T.his
Court held in the Northern Securities case that a
situation infinitely less acute than that was a
monopoly under this law.
Mr. Parker: I think that the Court in the North-
ern Securities case, or that a majority of this
Court, conceived that there was no purchase at all
in the Northern Securities case, but a mere cns-
tndianship created. I think that the point of sharp
division in this Court was whether there was an
actual investment by the Northern Securities Com-
pany or whether there was a mere custodianship
112
shows no purchase having the effect, intent or pur
pose to exclude others. Therefore I say that in
this case there is left out of the equation the con-
sideration mentioned by the Chief Justice, and we
have here simply the power that is inherent in any
wealthy man or corporation engaged in the to-
bacco business.
Now, it seems to me that the difference between
this power that I have mentioned as residing in
the monopolies, the power to exploit the public, re-
snlting from the fact that he has no fear and the
public no hope of competition, is a very different
thing from the power that these defendants have in ,.
the tobacco business. The fact, if your Honors
please, that the possession of large wealth and the
use of large wealth in business, brings the power
and temptation to violate the law against monop-
olizing, brings the temptation and power to ea-
clude others from the trade, may some time hera
after be an argument to the legislator who favors
the law to limit the capital of a corporation or the
wealth of an individual engaged in trade. In just
the same way, the fact that carrying deadly
weapons gave the power, and sometimes brought
the temptation to commit murder, undoubtedly in-
fluenced the legislators to enact statutes forbid-
ding the carrying of concealed weapons. Before
the passage of such statute, though, it seems to me
one would not be taken as serious who contended
that because the possession of a deadly weapon
gave power to commit murder such possession con-
stituted itself the crime of murder, or any other
crime.
Now, if your Honors please, we, representing the
main defendant, have a conception of the meaning
and effect of the Sherman anti-trust law that does
not seem to us either startling or ingenious. Taking
the statute as it is written, and taking the de-
cisions of this Court as its only authoritative com-
ment
We -
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a word of testimony in this Record, nor even is there
an allegation in the bill that alleges, that there is,
or ever has existed, any combination or concert of
action, or any relation between the American To-
bacco Company and its buyers and the buyers of
these Government monopolies. Moreover-
The Chief Justice: Will you give me those fig-
ures again?
Mr. Parker: 184,000,000 pounds, against 27;
000,000 pounds.
Moreover, if your Honors please, there is not in
this Record anywhere one word of testimony show-
ing the existence of any organization of farmers, the
producers of leaf tobacco, except a letter written
by the President of the American Tobacco Company
to the President of the Burley Tobacco Association
-the growers-in 1903.
Reference has been made by a member of the
Court to the frequent references that have been
made by counsel to Mr. Duke's testimony; the fact
is that Mr. Duke is the only witness who gives a
consecutive statement of the growth and develop
ment of this Company, and his testimony is not con-
taadicted. Mr. Duke puts into this Record a letter
(Vol. IV, p. 432) which he wrote to the Burley To-
bacco Society growers' president in 1903, and testi-
fies without contradiction that it correctly and ac-
curately states the attitude of the American To-
bacco Company toward the farmers and their or-
ganizations. Let me read one or two paragraphs to
you. I commend the whole letter to your Honors
for your consideration:
"Now, as I understand, it is proposed that
an association, embracing a great number of
the producers of burley tobacco, shall be
formed, which association shall have a cor-
porate form, and which association is to be a
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monopolizing, it seems to us, has come largely from
the indiscriminating use of the word "power." In
some judicial utterances, as well as in books written
by economic and social writers, monopoly has been
condemned even before it has been abused, because
of the power that thus existed for the exploitation
and oppression of the public.
Now, the (3overnment, taking hold of these ex-
pressions, argues in this case in effect this: "Let us
admit that these defendants have not excluded`or
attempted to exclude others from the field of manu-
facturing and selling tobacco and its products; let
us admit that their conduct has been as moderate
and praiseworthy as they claim, or as the Court be-
low found; admit this," they say, "and still they are
to be condemned and forbidden longer to pursue
business activities-because they have succeeded
and are succeeding; because they have tremendous
resources and capital compared with their competi-
tors, and have the power to crush these competitors
by the use of that capital and those resources."
Mr. Justice Mc%enna: Is that from their brief?
Mr. Parker: No; this is my construction of their
contention. I think it is a fair construction.
The Chief Justice: You speak of capital.
Mr. Parker : I speak of capital as power.
The Chief Justice: Capital as power. Define
what you mean by "capital."
Mr. Parker: I mean money; I mean wealth; I
mean resources.
The Chief Justice: Now, let me ask you this ques-
tion: Suppose a man bad a hundred mfllfons of dol-
lars in money. He would be wealthy, having one
hundred millions of dollars?
Mr. Parker : Yes, sir.
The Chief Justice: And suppose he would take
that wealth and Invest ten millions of it in A, ten
millions of it in B, a different thing; ten millions of
it in C, another thing; ten millions of it in another
it
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y
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s
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that there must be an intent manifested in some
way, to constitute a monopoly under this section?
Mr. Parker: Pardon me?
Mr. Justice. Lurton: That there must be an in-
tent to exclude others made out,in some way, to con-
stitute monopoly?
Mr. Parker: I think there must be an intent as
a precedent to an attempt; because I cannot con-
ceive of an unconscious attempt; but I believe that
if the effect of an illegal act is to exclude others
from trade then, as in other crimes, intent will be
presumed.
Mr. Justice Lurton: As a necessary, result?
Mr. Parker : Yes, sir. It must be by illegal means,
under any circumstances.
Mr. Justice Lurton : You do not mean that the ac-
quisition must be by illegal means?
Mr. Parker: No, sir; I do not;' but I mean
that his engrossing being itself illegal is illegal
means under the second section, not because
the acquisitor has all the trade at a given moment,
but because from the nature of the matter and
from the intent with which he acts, he has thereby
excluded others from the trade.
The Chief Justice: I am going to give you an
illustration that.runs in my mind. I recollect once
being present at a very acute discussion of the 16
to 1 question in the coinage of silver-the question
of supply and demand. The question of supply and
demand was largely discussed, and one of the gentle-
men, in the discussion, said that the situation re-
'Tbis answer presumed the word "acquisition" in the ques-
tien meant engrossing, the cornering of the raw niaterial,
the only kind of acquisition mentioned. We cannot con-
eeive thatthe acquisition of competing businesses (or their
consolidation) to any extent is an attempt to monopolize,
whatever the intent, because it leaves.the.8eld free to others.
It is just thiedifference in the result that.makee engrossing
illegal and the other acquisitions favored at.common law.
68685435
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129
Honor please. I am leaving out of account, now,
the fact that the Imperial Tobacco Company, with
a comparatively small business, yet had brands of
tremendous potentiality and popularity in Amer-
ica, which it conveyed to the American Tobacco
Company. So I say that the covenant of the Amer-
ican Tobacco Company to the vendee is the ordi-
nary covenant given by a vendor for the reason-
able protection of the good-will conveyed.
Mr. Justice Lurton: Is it limited to the use of
those brands?
Mr. Parker: No, sir; it is not. It is a covenant
not to engage in business. But,, if your Honor
pleases, I do not conceive that any of the covenants
not to re-engage in business given by a vendor upon
the conveyance of good-will and property is limited
to the particular property conveyed. I do not un-
derstand that in the case of Cincinnati Packet
Company vs. Bay, there was a limitation that they
should not use the boats conveyed. Indeed, I
gather that there the main thing conveyed was
the competition. So, as I say, the American To-
bacco Company's covenant to the Imperial is justi-
fied on the ordinary and valid grounds of being
a reasonable contract by the vendor to protect the
vendee in the enjoyment of the property and good-
will conveyed. I say that the covenant by the
Imperial Tobacco Company not to come to Amer-
ica is sustainable on two grounds: First, there was
a property conveyed by the Imperial Tobacco Com-
pany. In the second place, if there had not been,
the Imperial was the vendee of a property; and the
American Tobacco Company, as the vendor, had
the right to require a covenant to protect what it
retained.
What did they do? They united in the organ-
ization of the British-American Tobacco Company,
and both companies transferred and conveyed to
the British-American Tobacco Company immense
properties, an immense business, and brands and
good-will of immense value. I see nothing illegal
in that. If two men can meet and go into a part-
nership, and put into it the whole of their busi-
nesses and property without violation of law, then
two men or two corporations have a right to form
a corporation and to convey to it part of their
businesses and good-will and property.
Here were. properties, not stocks, conveyed, of
the value of millions of dollars; and these two com-
panies as vendors executed covenants with the
British-American Tobacco Company-the ordinary
covenants to protect the property and good-will
conveyed. There was not a contract; there was a
sale, accompanied by the ordinary contracts in re-
straint of trade, but in reasonable and valid re-
straint of trade.
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Mr. Parker: But the evidence in this Record is
not the evidence of the market quotations. It is the II m:
evidence of what these defendants paid to the m
farmers; and this evidence shows, without any con- ~ orl
tradiction, that every grade of leaf tobacco of which te,
these defendants are substantial purchasers, has ad- hr
vanced in value-some grades more than others, eA
and some grades less than others-but there has I
been generally an almost constant advance of the G
price paid by the American Tobacco Company to ci
the farmers; and there is not a syllable of proof I fc
that any farmer or. any member of an organization v:
of farmers even disbelieves that, h:
Mr. Justice Holmes: Is there any comparison of
that increase in values with the general increase of
the prices of other things?
Mr. Parker: No, sir; there are no such tables in
this Record. The testimony with respect to the in- $~
crease in the value of tobacco came from time to L
time into the Record as the men in charge of buying T
a particular grade were on the stand. For instance, ~
the manager of our southern leaf department testi- 7
fies with respect to the prices in Virginia, North
Carolina and South Carolina, and that there have
been advances in some grades to the extent of 100
per cent. (Vol. II, p. 126). There is the testimony
of our western leaf buyer, with respect to the bur-
ley: He testifies that it increased in a few years
from seven to eleven cents (Vol. II, p. 184). There
is the testimony of the buyer of the Snuff Company,
which company is the only one of these defendants
that buys tobacco in the black tobacco belt at all,
which shows that year by year the average cost to
the Snuff Company has increased (Vol. III, pp.
228-9). There is the testimony of Mr. Carlton, the
buyer of the Imperial Tobacco Company, as to their
increase in prices (Vol. IV, pp. 266-270).
M_
131
Oral Argument of Sol. M. Stroook on
behalf of IInited Cigar Stores
Company, January 11, 1911.
Mr. Stroock: If your Honors please: the United
Cigar Stores Company comes before this Court as
an appellee. The petition of the Government in
this case, so far as the United Cigar Stores Com-
pany is concerned, was dismissed by the unani-
mous judgment of the judges of the Circuit CourL
Organization.
George J. Whelan and his brothers, commencing
in 1883, became engaged in carrying on the busi-
ness of retail tobacconists in a number of cities in
New York State. They were saccessfnl. In the
spring of 1901, Whelan came to New York City
determined to go into the business of conducting a
large number of retail cigar stores throughout the
United States. With this end in view he caused
the United Cigar Stores Company to be incorpor-
ated. Not having sufficient capital of his own to
carry on the enterprise along the lines which he
thought necessary, he went to every tobacco manu-
facturer, cigar manufacturer, leaf tobacco dealer
and jobber whom he knew and laid his proposition
before them. As the Record ehows, he made to all
of them flattering offers, but every one declined to
take any interest in his enterprise.
Among the people to whom he submitted his
proposition were some of the officers of The Amer-
ican Tobacco Company, but they, like all the others,
turned the proposition down and refused to have
anything to do with it.
Whelan and his associates thereupon went ahead
on their own account. Their initial investment in
the enterprise was 42,500. But that is not all;
for by November, 1901, they had invested $50,000
WX
of the majority of this Court in the Northern Se-
curities case, it' seems to me that the effect of that
decision is to say that the holding company, in rail-
road matters at least, violates the law, and is, as
I have said, the mere synonym, in corporate form,
of the old-fashioned trust.
Assuming, but only for the sake of the argument,
that the holding company in industrial affairs is
thus condemned, it seems to me that you must
go for your definition of a holding company to
the decision in the Northern Securities case; and
it seems to me that that definition is about this:
It is where a company issues, as a part of a general
scheme, its own shares in exchange for the shares
of competing companies, thereby eliminating any
incentive for activity on the part of the independent
companies, and substituting only their interest in
a mere holding company:
If your Honors please, if this is applied to this
Record, there is no holding company developed. In
the first place, every one of these principal defend-
ants is largely an operating company.
In the second place, I should say that with re-
spect to most,of these companies, there is no natural
competition at all. The American Tobacco Company
is enjoined from voting the stock that it holds in
the Mengel Box Company, the company manufac-
turing the boxes. What theory of the Northern
Securities case is violated by that holding of stock
and voting it? No trade activity is limited; and
even if competition is the key-note of the Sherman
law, there never would be competition between a
box manufacturer and a tobacco manufacturer. Yet
the great majority of the companies whom the main
defendants are enjoined to continue in control of
are not competing companies at all, but only related
or non-competing companies.
58685941
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S
mentary, this is our conception of the Sherman law.
We conceive that the meaning and effect of the
statute is to preserve to everyone opportunity and
liberty to engage in interstate trade-to preserve
such opportunity and liberty against the voluntary
covenant or quasi-covenant of the trader, as well
as againat the improper conduct of other persons.
In our conception that is the wbole law.
The first section, in so far as it forbids contracts
and combinations in restraint of trade, forbids any
sort of arrangement whether it be by actual cove-
nant',or other combination or device between inde-
pendent traders, whereby they directly or indirectly
agree to limit their activity in interstate trading,
or where the result of the arrangement is to take
2 away the incentive to such activity in interstate
trade. We conceive that under the first section, or
the second section, it is as much against the law for
two insignificant interstate traders to agree, or to
come together by any other combination or device to
suppress the liberty of trading which they had be-
fore, as if the agreement constituted ninety per cent.
of the trade.
The first section, as we conceive, in forbidding
the entering into a conspiracy in restraint of inter-
state trade protects the trader against outside in-
terference. The crime of conspiracy in restraint of
trade undoubtedly has its typical instance in the
Danbury Hat case, where the interference was by
those themselves not engaged in interstate trade
at all. The second section, when it forbids the
monopolizing or attempting to monopolize any part
of interstate trade, forbids the excluding or at-
tempting to exclude others from interstate trade.
In our judgment, in order to violate this section,
the exclusion, or the attempt to exclude, must be
by means at least. tortions, either at common law
or by some other statute, in order to save this sec-
policy of the common law under the conception of
facts held by a majority of this Court.
So we contend that the preservation of the lib-
erty and opportunity of trading, the preservation
of the principles of the common law, and the pro-
vision of a remedy adequate for the violation of
the principles of the common law was the purpose
of this statute.
If your Honors please, if this conception is right,
it seems to me'that we come down to a very few
queations:.
First, have these defendants in combination with
others, or acting alone, excluded others from the
trade? To that question the Court below answers
impressively and expressly, no; and it does seem
to me, if that is wrong, that it is the part of the
Government to lay its hand on such conduct as,
being continued, will exclude others, and ask for
an injunction against the continuance or repetition
of those practices.
Have we entered into any contracts limiting any-
body's freedom in trade? The only things that I
can conceive of are the covenants taken from the
vendors; and we say and argue with absolute con-
fidence that every one was taken by a vendee com-
pany in reasonable protection of the good-will con-
veyed. If there are any that are unreasonable on
this basis, it was the part of the Government to
call attention to those covenants. The Court found
none.
Has there been in the intercorporate relations
of these defendants such a condition shown as elim-
inateq all incentive to activity in interstate trade?
Now, if your Honors please, it seems to me that
this brings us to a consideration of the holding
company, as discussed in the Northern Securities
case. Bowing, of course, cheerfully to the decision
5:
A
138
Company has been used by the American Tobacco
Company as an instrument to acquire a monopoly
of the xetail trade in tobacco products, to drive out
of business other retailers, and to prevent others
from entering the field. That is the charge.
Again we respectfully call the attention of the
Court to the unanimous opinion of the Court below,
to the effect that such charge ist not only entirely
without foundation and without any evidence what-
soever to sustain it, but the Record abounds with
evidence showing quite the contrary. And I will
read you a brief extract from the opinion of Judge
Coxe on that point. It is found in Volume 1 of the
Record, page 303-4:
"The proof fails to establish unfair or un-
lawful methods in acquiring and conducting
the business of the Cigar Stores "' No
special privileges are accorded by the To-
bacco Company to the Cigar Stores Company
over other purchasers. Their business is con-
ducted in their own way, without dictation
from the Tobacco Company."
The Assistant Attorney-General in his argument
said :
"Through the United Cigar Stores Com-
pany they are, one by one, displacing all the
important cigar retailers throughout the im-
portant cities of the United States. The
thing has grown almost like Jonah's gourd."
The Record shows that there are 600,000 places in
the United States in which tobacco products are
sold at retail. Of these, the United Cigar Stores
Company owns and operates 409. It is significant
that of all the 599,591 retailers in the United States,
in no way connected with any of the defendants, not
one testified that any unfair competition had been
indulged in by this Company, or that, either alone
or in combination with the other defendants, it had
injured bim in any way in his business.
b968545"Y
ond, section from absolute invalidity on account of
vagueness and uncertainty of meaning, as well as
to prevent the statute from destroying the very
competition it, was intended to foster.
The Chief Justice: Will you read that again?
I see you are following notes.
Mr. Parker: Which part do you mean?
The Chief Justice: That last proposition.
Mr. Parker: The second section, according to our
conception, forbids the. exclusion or the attempt to
exclude others from interstate trade.
The Chief Justice: That is, monopolizing.
Mr. Parker : In our judgment, in order to violate
this second section the exclusion or attempt to ea-
clude must be by means at least tortious, whether
criminal or not, either by common law or statute
other than the Sherman law, in order to save this
second section from absolute invalidity on account
of vagueness and uncertainty of meaning.
Mr. Justice Holmes: Do you not take your con-
tention too far there? It would not be tortious
at common law for an immense concern to lower
'the prices for the purpose of driving another man
out of business in the same community. Might not
that very well be within the monopoly clause of the
Sherman law?
Mr.. Parker: I think it might very well be; I
think it might most desirably be; but it is not there;
and many authorities there are which hold that the
lowering of prices with a purpose to drive out a
competitor, is simply competition. Personally I
am delighted that this record is lacking in evi-
dence of such practices. But I do not conceive that
the ordinary means of competition commended by
the comomn law are prevented by the second sec-
tion of the Sherman anti-trust law, because what
measure are we to have as to the propriety of the
competitive methods? If it is to forbid competition
and at the same time foster competition, who is to
draw the
injurious ~
tion?
Mr. Juf
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136
them are purchased from you by the United
Cigar Stores Company?
"A. With a few exceptions, with a few
goods-in a few cases they buy generally
from us."
Mr. Hiilman further testified (pp. 500, 602) that
the United Cigar Stores Company purchased on
credit from him between #60,000 and #T0,000 worth
of inerchandise in each year, and that this did not
include the purchases made by that company from
him for spot cash, of which he kept no record; that
the largest amount of business which his concern
ever did in any one year was $325,000; so that
this company alone purchased twenty-five per cent.
of his total output.
Mr. Whelan, the president of the United Cigar
Stores Company, was called by the Government
at a witness. Of course his testimony is that of an
interested witness, but it is absolutely uncontra-
dicted. And this is what he testified to at Volume 3,
page 115 of the Record:
"No one ever told me what goods to buy.
Mr. Duke always told me to buy wherever
I could buy the cheapest.
'IQ. To buy your goods anywheres?
"A. Wherever we could buy the cheapest.
"Q. What have you done?
"A. That has been our action.
"Q. You handle the goods manufactured
by other manufacturers in your stores?
"A. We sell everyone's goods that has a
demand.
. . . .
Q. Now as far as pushing the goods of
manufacturers other than the American To-
bacco Co. and its allied companies, have the
sales of the other manufacturers increased
in your stores?
"A. Well, such goods as increased gen-
erally with other people showed a greater
increase in our stores than they did in out-
side people's stores."
88685455
135
whatsoever. Not a single jobber called by the Gov-
ernment testified that this defendant refused to
deal with him, or, in dealing with him, had refused
to treat his goods fairly. There is not a line in the
Record which even inferentially supports such a
charge.
But the Assistant Attorney-General now says:
"It is true that you do handle independent goods,
but you do that because you think it wise to get
the profit and hold the customer." Of course that
is true. Few men go into the tobacco business
or into any other business for the pleasure of the
thing. Their primary purpose is to make money;
and they handle the goods that the public wants,
in order that they may make money.
Because a large percentage of the stores of the
United Cigar Stores Company (viz.: 163 out of a
total of 409) are located in New York City, and
because, therefore, such a large percentage of the
total volume of its business is in New York City,
Mr. Hillman, an independent jobber of New York
City, was called by the Government as a witness.
He testified that be would not bandle or deal in
the goods manufactured by the American Tobacco
Company and its associates-not because they
would not sell their goods to him, but because he
refused to handle their products, preferring to
handle only goods manufactured by independent
manufacturers. And then he testified, at Volume 3,
page 499:
"Q. Is the United Cigar Stores Company
a customer of yours?
"A. It can be so considered, yes; I think
we sell them goods.
"Q. Well, extensively, do you not?
"A. Rather, yes, yes.
"Q. These various goods that you have
enumerated, the different brands of cigar-
ettes and smoking tobaccos, quantities of
One retailer was called. But before we examine
his testimony, attention is called to certain per-
tinent facts shown by the Record. They are these:
1. That in New York City, where 163 stores of
the United Cigar Stores Company are located, there
are to-day more retailers actively engaged in busi-
ness than there were before the United Cigar Stores
Company came into the field.
2. Including the stores operated by its sub-com-
panies, this company operates 409 out of 600,000
cigar stores and stands. Bo that during the time
that it has been in business, and after the exercise
of these tremendous influences with which it has
been, charged, it has managed to acquire one-sixth
of one per cent. of the total number of cigar stores
in the United States.
'But," says the Assistant Atorney-General, "it
is true that the number of its stores is insignificant
compared with the whole; but look at the volume
of its sales! They are enormous"
Let us assume, for the purpose of argument, that
a corporation or individual which succeeded in
building up a large bnsineas--so large, indeed, that
the volume of its sales is a large percentage of the
total bnsinees-in some way offends the provisions
of the Sherman Act. If we examine the Record in
'this case, we find that the percentage of the retail
business in the United States carried on by this
Company is small indeed. According to the beat
computation available (see Main Brief of The
American Tobacco Company, page 140), we-find
from the Record that in the year 1906 the total
amount of the sales at retail of tobacco products in
-the United States, manufactured and produced by
cigar and tobacco manufacturers (including not
only the defendants but all manufacturers gener-
ally), was $565,000,000. The sales at retail by the
ord is
is the
o the
y con-
which
as ad-
thers,
e has
f the
ny to
proof
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on of
ise of
es in
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127
So tliat you have not in this Record tables of the
market quotations, but you have the actual testi-
mony of the cost to these defendants; and it is with-
out qualification, without modification, without con-
tention on the part of the Government so far as I
have ever heard, that there has been an advance in
every grade of leaf which these defendants use.
We did not go into the cigar leaf. Neither the
Government nor ourselves thought that we.cut snffl-
cient figure in the cigar leaf trade, making only
fourteen per cent. of the cigars, as to make that
valuable;.and I do not know what fluctuation there
has been in that respect.
Reoess.
Mr. Parker: If your Honors please: It has been
stated in response to the question of Mr. Justice
Lurton, that the counsel representing the American
Tobacco Company and the other main defendants,
represent also the British-American Tobacco Com-
pany. We do not disagree in any way with the
counsel for the Imperial Tobacco Company in the
conception that these contracts of 1902 are valid.
But there is a consideration that I desire to ex-
press to the Court just as briefly as I can-
I conceive that contracts that only divide up ter-
ritory are illegal; and I conceive, moreover, that
these contracts contain covenants in restraint of
trade. But the situation, as it seems to me, must
be taken fully into account. The American Tobac-
co Company had a large and valuable and growing
business in England, with vast property for which
it paid several million dollars, and to which
it had added several million dollars more. It bad
brands in England that had achieved great popu-
445.
With respect to competing companies, there is no
scheme developed. Every concern in which any of
these main defendants hold stock, but one, was ac-
quired as to its stock, for cash or its equivalent; the
P. Lorillard Company stands alone as the only com-
pany whose. stock, held by any of these main de-
fendants, was acquired by the issuance of stock of
the owning company or any predecessor.
Now, if your Honors please, there has been a mu1-
titude of briefs, oral arguments and supplementary
briefs filed in this case. I am requested by Mr.
Johnson to say to the Court that the ideas which I
have so inadequately presented are amplified in a
snpplemental brief filed a few days before the arga-
ments began, bearing the signature of Mr. Johnson
and associate counsel, and I ask the Court's special
attention to it.
I desire only to say a word more, and that is in-
duced by questions that were asked by the Chief
Justice and Mr. Justice Lurton in connection with
the leaf tobacco situation.
Mr. Justice Lurton asked Mr. Nicoll if there was
anything in this case in regard to night riders,
farmers' organizations, etc., in the black tobacco
belt in Tennessee and Kentucky. Mr. Nicoll cor-
rectly told him that there was none; but I think it
may be interesting to this Court to know the fact,
and it is a fact shown by this Record, that the crop
raised in 1903 in the black tobacco belt with respect
to which Mr. Justice Lurton asked, is about 180,-
000,000 pounds, and that these defendants, in the
aggregate, never bought but 27,000,000 pounds
(Vol. V, Ex. 76, "Dark Western, including Hend.
Dist1'). The fact is, as shown by this Record, that
aimost all of that tobacco is bought by the Regie
buyers-tbe Government monopoly buyers-of
Italy, Austria, France and Spain; and there is not
larity, until their consumption was to some extent
diminished by the increasing differential between
leaf tobacco on the one hand and manufactured
goods on the other. It sold to the Imperial To-
bacco Company these vast properties. Surely its
covenant not to engage in business stands exactly
as valid under the rulings of this Court as one of
those contracts valid at common law, not invali-
dated by the Sherman Anti-Trust Law-the con-
tract of a vendor in reasonable protection of the
property and good-will conveyed.
I quite agree, if your Honors please, with the
suggestion that the Imperial Tobacco Company, up
to the time it entered into that contract, had full
power to come to America and to establish fac-
tories and to compete with the American Tobacco
Company in America just as the American To-
bacco Company had with the Imperial Tobacco
Company in Great Britain. So the American To-
bacco Company, considered as a vendor, had a right
to require a covenant from the Imperial Tobacco
Company that the property it was conveying should
not be used in competition with the business re-
tained by it In the very illuminating opinion by
Circuit Judge Taft in the Addyston Pipe and
Foundry case, that is mentioned as one of the five
classes where contracts in restrain of trade were
valid at common law and are valid under the Sher-
man law. It is the contract taken by a vendor
from a vendee, when the vendor retains a large
property, that the property conveyed to the vendee
shall not be used in competition with the property
of which the vendor retains possession.
Mr. Justice Lurton: That is, the restr9ints are
not unreasonably wide?
Mr. Parker: That is the contention, if your
58685447
Honc
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143
every element of oppression is absent from the
Record.
We submit that.tte tobacco business is such
that no man nor any combination of men can mon-
opolize or attempt to monopolize any part of it.
The power inherent in all wealth is not sufficient
for this purpose; and this Is especially true of the
retail business. The necessary or direct effect of
any combination between the defendants was not
to restrain commerce. The Record shows that no
strangers to the combination were excluded from
the trade; and it fails to show any attempt to
exclude strangers. No means were adopted or
used, or attempted to be used, which prevented or
restrained others from engaging in the business.
The Record fails to show that any effort was made
to force a single retailer to sell out or to go out of
businesa, or to interfere with any.one in engaging
or attempting to engage in businees. Not only did
the Government fail to produce one man whose
business had been interfered with or injured, but it
also failed to produce one man who had been driven
out of business or prevented from entering it.
The Record shows that other retailers have
profited by the example of this Company. They
have kept their stores clean; they have dressed
their windows attractively. They have given the
public the goods which the public demanded; and
as a result many of them have built up splendid
businesses in competition with the Company. Their
stores have come even to look like the stores of
this Company and are often mistaken for them.
I submit that upon the Record, and upon the
Record alone, the judgment of the Court below, so
far as this defendant is concerned, should be af-
firmed.
cTswa]
142
Stores Company, almost every one was opened by
it as a cigar store for the first time. Only a small
number of these stores were purehaaed from other
retailers; and of these, except in three or four in-
stances, reference to which will be made in a mo-
ment, every one was at liberty to go right back into
the retail business and in competition with this
defendant-and the Record shows that most of
them did. It further shows that they continued to
be successful in that competition.
In the three or four instances in which this com-
pany bought out the business.of other retailers, and
took from them covenants for a limited period and
for a limited territory not to engage in the retail
cigar business, the man whose business was pur
chased not only entered into the employment of
the company but became an active director and
manager of its business in that particular terri-
tory; and, as the evidence shows, he shared in the
general prosperity of the company.
The taking of this covenant was but an incident
of the purchase of the goodwill of the business,
part of the sale of the business, and in no sense a
device to control commerce. It was one of the
conventional inducements of the purchase.
Conduct Toward the Consumer. '
How has the public been affected by the opera-
tions of the United Cigar Stores Company? The
Record does not suggest, even by inference, that the
prices to the consumer were at any time raised,
nor that the consumer was in any way hindered in
procuring a supply of tobacco products. There is
no suggestion of any agreement on prices-that is,
with regard to the prices at which the goods should
be bought by the United Cigar Stores Company,
nor in regard to the prices at which they should be
sold. There is no evidence in the Record of the
cutting of prices to oppress other dealers. In fact,
58685461
created as a part of a scheme for eliminating com-
petition between those two roads.
The Chief Justice: Then your answer is that the
question whether or not it creates a monopoly de-
pends upon a matter of form, and not a matter of
substance?
Mr. Parker: No, if your Honor please. Indeed,
I trust I am not to be put in the position of trying
to reconcile the conflicting views discussed in the
Northern Securities case; but the Northern Securi-
ties decision was based upon the fact that
there was, in fact, no investment, and that there
was a mere custodianship created; and that the
holding company was the mere corporate synonym
of the old-fashioned trust, and that the stock cer-
tificates, so-called, were in essential respects, the
old trustees certificates; and we conceive that in
that way it. was only a scheme. But your Honor
has put to me a case where there has been an ac-
tual investment. I gathered from your Honor's
question that actual investment only brought power
to exclude others. In that condition, I say it is
not violative of the second section of the Sherman
law.
Mr. Justice Mcgenna: In other words, it is not
power possessed, but power exercised.
Mr. Parker: It is the exercise of the power; it
is the doing of the illegal thing or attempting to
do it.
Now, if your Honors please, we conceive that
this interpretation of the law keeps it from being
radical or revolutionary, and makes it a develop-
ment of, instead of a departure from, the orderly
growth of economic legislation. It becomes an ap-
plication to interstate commerce of the doctrine of
the common law. Whether offenses against the
Sherman law were criminal at common law or not,
no contract, in our conception, or arrangement oi
conduct, has been condemned by this Court as
5858543'7
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141
"Q. How about Mr. Lane; has he more
stores to-day than he had five years ago in
New York City?
"A. I think he has more stands. More
places for the sale of cigars and cigarettes
at retail.
"Q. How about Godfrey Mahn; has qod
frey 3tahn more stores in New York City
to-day than he had five years ago?
"A. Yee."
A time-worn misrepresentation concerning the
Company is to the effect that it has leased locations
in which competitors had carried on successful re
tail establishments, and thereby had forced the
retirement of such competitors. Again, not a sin-
gle witness testified that his location bad been
leased over his head, with the exception of Mr.
8chu}te. And he teatified, in answer to the As-
®atant Attorney-General: "Yes; I have been driven
out of two locations by the United Cigar Stores
Company" ( V ol. I I I, p. 465).
On cross-examination it developed that concern-
ing both of these locations these were the facts:
The United Cigar Stores Company had gone in
there originally and had established cigar stores
in both of them-a business that had not been car-
ried on before in either of those locations. The
locations then obtained a good-will. 8chulte, as a
splendid successful competitive merchant, came
along, bid higher rent (in one case increasing the
rent from $9,500 to *16,500 a year) and got the
leases away; and at the. termination of his leases
we got them back again (VoL III, pp. 474-6). That
ie the only evidence in this entire Record of any
retailer having a location taken away from him.
The Government further charges that this Com-
pany has bought out the business of a number of
retailers, and in that way has forced their retire-
ment. Again we refer to the Record.
Of the 409 stores operated by the United Cigar
by them. There is the decision in the. Northern
Securities case, which prevented the elimination of
competition between railway companies by a
scheme of their respective stockholders entered into
for the purpose of eliminating that competition.
There was a decision which prevented an agreement
among the manufacturers of iron pipes that their
competition should be only ostensible and not real.
There has been a decision which gave to the pur-
chaser who had paid an excessive price for his iron
pipes treble the damages that he. recovered. There
have been decisions which prevented men from con-
spiring with other men in their interstate trade,
whether these other men belonged to labor unions
or were competitors.
It seems to me that having achieved such salu-
tary effects the law cannot be called insignificant.
Of course, if your Honors please, with respect to
this, if this is the proper conception, the Knight
case was correctly decided. There, there was a
mere purchase of property, with not even the
covenants not to re-engage in business given by
the vendors, such as are usual in such transac-
tions; and the Government is not yet ready to say
that the mere acquisition of property is violative
of this law.
The Trans-Missouri case, the Addyston Pipe and
Foundry case, and the Swift case are all typical
instances of contracts or quasi-contracts restrain-
ing competition among competing concerns.
The Northern Securities case, as I said before,
as conceived by a majority in this Court, dealt with
the fact that there was no real investment, but a
mere scheme to eliminate competition between these
roads. If the Northern Securities case had arisen
at common law, in a suit at equity for specific per-
formance of the contract of delivery by the stock-
holder, it would have been declared against the
b8685439,
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140
United Cigar Stores Company during the year 1907,
were, at the time of the taking of the testimony in
November, 1907, estimated to be ;15,000,000. so
that during the year 1907 the business of the United
Cigar Stores Company amounted to about three per
cent. of the whole retail business in tobacco prod-
ucta.
Based upon these figures, and assuming that the
sales of tobacco will continue to be stationary, that
every other retailer in the United States will be
gradually driven out of business, and that the
United Cigar Stores Company will alone remain, it
will take about three centuries, if the United Cigar
Stores Company continues the.same vigorous efforts
which the Government has charged, to acquire any-
thing like a monopoly in the retail trade of tobacco
products.
We come now to an examination of the testimony
of the only retailer whom the Government called as
a witness-Mr. Schulte.
It is true that Mr. Schultee on his direct-eaamiua-
tion testified that the average dealer will be less suc-
cessful, and that a great many dealers will be forced
out of business, if the general policy of this com-
pany is continued during the next five years. But
upon cross.esamination Mr. Schulte could not name
a single Tetailer who had been forced to retire from
business, or who had been injured. He conceded
that he himself had been in the retail business for
fifteen years; that he had prospered; that he had
five stores when the United Cigar Stores Company
commenced to operate in New York City, but at the
time he was examined he had twelve, and that he
was about to open a number of others, not only in
New York but in other cities. And he testified
(Vol. III, pp. 472-3).
"Q. Your business has been a very profit-
able one, hasn't it, Mr. Schulte?
"A. Yes.
. w . .
58685459
s
132
of their own money, and had succeeded in making
$2,000 upon their investment.
During the months that elapsed between the
organization of the United Cigar Stores Company
and November, 1901, Whelan,. being convinced of
the ultimate success of his enterprise, persistently
kept at the officers of The American Tobacco Com-
pany, trying to induce them to invest. Finally, in
November, 1901, he succeeded in convincing Mr.
Duke and Mr. Hill that his enterprise could be
made successful, and he then induced them, not to
buy him out, but to invest $50,000 in the enter-
prise. so that the United Cigar Stores Company
then had a capital of $100,000.
The Record shows that neither then nor at any
other time was any contract entered into between
the two companies. No agreement was had as to
pushing the goods of The American Tobacco Com-
pany or hindering the sale of the goods of inde-
pendents. Whelan had represented that the retail
business as a business could be made to be profit-
able; and the Record shows that the investment
of the American Tobacco Company was made with
but one end in view, and that was to make money
upon its investment.
for the next year or two the capital investment
was not increased. Butat the end of that time,
Whelan, through his business ability, having dem-
onstrated that the enterprise could be made suc-
cessful, it was decided to increase the capital stock.
Bonds and preferred stock were issued. Whelan
and his associates were afforded the opportunity
to buy one-half of the preferred stock and one-half
of the bonds; but as.they had charge of the enter
prise, actively conducting it, they preferred to in-
vest their moneys in the common stock, from which
source the largest share of the.profits was to be
ceived. There was issued in all $750,000 of pre
ferred stock, all of which was bought by the Amer-
&8685451
134
no injunction be issued against this defendant, but
also that there was nothing in the Record to justify
the granting of an injunction against the American
Tobacco Company to restrain it from controlling
this defendant, nor from interfering with it in xts
development, because there was no evidence of such
contzol or interference.
Conduct Toward Manufacturers and Diatributorer
Of course the United Cigar 8tores Company hes
promoted the sale of the products of the American
Tobacco Company. But this has not been the re
suit of any contract, agreement or understanding.
The tobacco business, as the Court has been told,
is a business of brands. In different parts of the
country different brands are in demand, different
kinds and qualities of tobacco, different sizes of
cigara. The taste of the community in different
parts of the country and even in different sections
of the same city differs materially. What the public
wants in New England is a drug on the market
in Texas. The taste of the public must be catered
to. The consumer is the boss of the tobacco bffi-
neas, because tobacco is a luxury; and any concern
that attempts to foist hpon any community a kind
of tobacco or a kind of cigars that that community
does not demand, must inevitably go into bank-
raptcy.
Every manufacturer who was called as a wit-
ness in this caee teatified to that fact; and nothing
in the Record is more firmly established.
Accordingly, this Company has promoted the sale
not only of the goods of the American Tobacco
Company, but of the goods manufactured by inde
pendent dealers everywhere-whatever the public
tastee in each locality demanded. Not one manufac-
tnrer called by the Government testified that this
defendant refused to handle his goods, or to treat
them fairly, or that it hindered him in any way
Both of the members of the firm of Bchinasi
Brothers, large independent c.igarette_mannfactnr-
ers, were called as witnesses, not by the Govern-
ment but by the American Tobacco Company.
Solomon 0chinasi testifled, at Volume 4, page 665:
"Q. Is the United Cigar Stores Co. a large
customer of yours?
"A. Next to the Metropolitan comes the
United Cigar Stores as a retailer, certainly.
. . . . .. . .
"Q. Have you had any reason. to com-
plaint, Mr. Schinasi, that the Metropolitan
or the United Cigar Stores were treating
your goods nnfa'rrly$
"A. No. We never find out anything like
that.
"Q. The truth of the matter is retailers
have to handle what the consumers call for,
do they not?
"A. I think so."
How can it be said that this company has been
used to cripple other manufacturers and distribn-
tors of tobacco with a view of driving them out, de-
stroying competition, and preventing others from
entering, when the Record shows affirmatively that
the United Cigar Stores Company is and always has
been a large distributor of the goods manufactured
and dealtin by concernsin no way connected with
the American Tobacco Company?
Mr. Justice Holmes: Do the United Cigar Btores
Company's stores sell domestic cigars as well as im-
ported Havana cigars?
Mr. Stroock: Certainly, sir.
Mr. Justice Holmes: I did not remember as to
that
Mr. Stroock: Certainly.
Conduct Toward Retailers. .
We now come to the consideration.of the third
branch of this case; and that is the charge that this
I
0
IM
{:
a
133
ican Tobacco Company, and ;900,000 in common
stock. In this common stock Whelan and his
brothers and their associates invested their entire
fortunes, amounting to $300,000; the American
Tobacco Company taking the balance of $600,000.
I do not understand It to be seriously urged that
the investment by the American Tobacco Company
in the bonds and stocks of the United Cigar Stores
Company in any sense offended the Sherman Act.
The American Tobacco Company and the United
Cigar Stores Company were not and could not be
competitors. The former manufactures and sells
tobacco products at wbolesale. The latter sells to-
bacco products at retail only over its own counters.
Government Charges.
But the Government charges that having ac-
quired that interest, the American Tobacco Com.
pauy made use of the United Cigar Stores Company
as an instrument for three purposes:
Firat, to injure and cripple other manufacturers,
and to prevent them from distributing their
products.
Second, to injure and drive out of business job
bers in tobacco products.
And third, to injure, cripple, and drive out of
business other retailers, and-to attempt to monopo-
lize the retail trade in tobacco products.
Conclusiona of the Circuit Court.
Judge Coae, in the Court below, exhaustively
wrote the story of the United Cigar Stores Com-
pany in the opinion which is in the Record (Vol. I,
pp. 3023). He found that neither in its organ-
ization nor in its operations was there anything
offensive to the Sherman Act committed or at-
tempted. In this opinion all four of the judges be-
low concurred. They found'that not only should
.IN'"
things reaosuring to the business interests of the
country. Your Honors are familiar with his lan-
guage. He wrote in part, as Y recall it, that the
formation of corporations for business purposes
and the purchase of a competitor or the withdrawal
from trade of a competitor had never been regarded
as a violation of the Sherman law, notwithstanding
the incidental suppression of competition. There
is no manner of doubt that, after the decision of
this Court in the Knight case, and the reassuring
language of the Court in the Joint Traffic case, that
the entire legal profession and all manufacturing
interests believed that these transactions were law-
ful and did not offend the Sherman law.
I suppose the Court will take judicial notice of
the fact that after these two decisions the era of
consolidation in this country began. Seventeen
States passed laws authorizing mergers, the organ-
ization of merged companies, and the holding of
stock in one company by another. Is it possible
that all lawyers and all laymen have made a mis-
take on this subject? You cannot say that all men
Intended to violate the law. It will not do to bring
an indictment against all the business interests of
the country. No! All men did not intend to vio-
late the law. If the law was violated, then a mis-
take were made, and if all men were mistaken it is
certainly one of the most unfortunate mistakes that
has ever been made in the history of our affairs.
Now, all of this was fairly presented to the Court
below. We relied on these cases, and we pointed
out to the Court that the decision of the Court in
the Northern Securities case had no application
here. That was a case relating to railroads and this
is a case of mannfacturera. We contended that that
was a case relating to the inetramentalitiea of com-
merce, and that this was a case which relates to the
instrumentalities of production-not commerce, but
the forerunner of commerce. We pointed out to the
0
28
the plan of procuring in Asia the two-years' supply
of licorice root which was deemed necessary for
the protection of the business. These transactions
were expressed in contracts; and were abandoned
several years before this suit was brought, and be-
fore the indictment. The Government seized upon
these abandoned transactions and obtained an in-
dictment against the McAndrews & Forbes Com-
pany, the Young Company, and included in the in-
dictment Mr. Jungbluth, the President of the Mc-
Andrews & Forbes Company, and Mr. Young, the
President of the Young Company. They were all
indicted for a violation of the Sherman law. Upon
that trial we showed the jury just what we have
showed the. Circuit Court here-all our business
transactions and methods, so far as they related
to licorice paste; and while the jury, under the in-
struction of the Court, found the companies guilty;
because of the terms of the written contracts long
abandoned, they acquitted the individuals who had
actually made the contracts, because they were
able to see what everyone connected with the case,
except the Government, was able to see, that there
was no intention on our part to harass or oppress
our competitors, and that the violation of law, if
it existed at all, was purely a technical one.
Now, from that time on the situation with re-
gard to licorice paste has been this:
There are other manufacturers of licorice paste
besides the McAndrews & Forbes Company. One
is Lewis, of whom I have just told you, now alto-
gether indepedenent of us. Another is Weaver &
sterry, of New York. Another is the Pharmaceu-
tical Works, in Jersey City. But the McAndrews
& Forbes Company is the largest, and it sells the
greater part of its products to the American To-
' bacco Company for the manufacture of its plug
~ tobacco. It also sells to such independent manufsc-
turers as desire it. There is nothing in the world to
6868534'7
29
prevent any independent manufacturer from mak-
ing licorice paste himself, and some of them have
done it-notably Mr. 7.arus of Richmond-but the
MeAndrews & Forbes Company has such an estab-
lished reputation, and its conduct is so fair, that
the independents prefer to use it rather than to go
into the business on their own account. Therefore
we sell it to them at exactly the same price as
it is sold to the American Tobacco Company.
In other words, we offer the independents a ten-year
contract at eight cents a pound-the same contract
as is made with the American Tobacco Company.
If they do not.want to enter into a ten-year con-
tract, but want a contract from year to year, we
sell it to them for one cent a pound more-nine
cents a pound. 8o that the situation of the iude-
pendent maunfacturers with regard to licorice
paste is this:
They can have a ten-year contract at the same
price as the American Tobacco Company; or they
can have a contract from year to year at nine cents
a pound; or they can buy of the independent manu-
facturers of licorice paste whom I have just men-
tioned; or, if they choose, they can go into the
manufacture of licorice paste themselves. It seems
to us that this conduct is so eminently fair that no
just criticism can be made of it. Certainly no one
can spell out of it any attempt on our part to re-
strain trade in licorice paste.
Nature of Transactions Shown by Record.
I have now gone over briefly the history of the
birth and growth of the American Tobacco Com-
pany.
What are the transactions shown? The only
ones that are impugned by the Government fall
within the four following classes:
(1) Consolidation of competing manufacturing
interests through the formation of a corporation,
0
31
in the processes of manufacture, and such extrordi-
nar,v and fundamental differences in the tastes of
the consumers, that it cannot be said that the vari-
ous products compete with each other in the same
way or to the same extent as with other staple
goods.
Even if you consolidate several plants making
cigarettes from a crop like the flue-cured tobacco, of
Virginia, you have not joined together things which
are necessarily competitive, for a consumer's at-
tachment to one brand of cigarettes does not easily
change to another, and he may give up smoking
cigarettes altogether if he cannot find the brand to
which he has been accustomed. It canot strictly
be said that Havana cigars compete with domestic
cigars; for the smoker of one rarely uses the other.
And when we come to the great divisions of the
tobacco trade, it is clear enough that there is very
little, if any, competition among them. Cigarettes
do not compete with plug tobacco. Snuff does not
compete with cigars. Smoking tobacco does not
compete with cheroots; all-tobacco cigarettes do not
compete with paper cigarettes. Cigarettes made
from Virginia tobacco do not compete to any extent
with cigarettes made from Turkish tobacco. Dry
snuff does not compete. with wet snuff at all; and
the snuff which is used by the Swedes in the north-
west is in no competition with the wintergreen or
other flavored snuffs which are consumed by the
factory girls of New England.
Mr. Justice Holmes: I was wondering who it was
that consumed snuff. You hardly ever see any-
body take it
Mr. Nicoll: It is consumed in the factories, I
think.
Mr. Justice Holmes: It is consumed in the fac-
tories?
Mr. Nicoll: Yes. The theory of the Government
throughout has been that every consolidation was
>.
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39
tion-to say that you did not. Does that destroy the
argument of the other side?
Mr. Nicoll : The other side said that we did, and
that that is where they discovered it; but I say
there is nothing to their argument. We never
bought to suppress competition. Take the very
first purchases. We had no cheroot business,
and we bought a cheroot factory. We had
no plug business, and we bought a plug fac-
tory. We had no business in little cigars,
and we bought three factories engaged in
their manufacture. None of these were compet-
ing businesses. And afterward, every brand and
every factory that we bought we bought as an in-
vestment. We bought for cash or the equivalent
of cash. Every single. investment that we have
made has been in a brand out of which we thought
we could make money, and in most instances we
have not been disappointed.
Most of the purchases were made from 1890 to
1901, but there were periods of months and years
when no purchases were made at all.
For every purchase there were good and suf-
ficient reasons, fully stated in the clear and con-
vincing testimony of Mr. Duke, the President of the
American Tobacco Company, which I trust your
Honors will read. Sometimes a purchase was made
because the factory manufactured a kind of product
entirely different from anything manufactured by
the American Tobacco Company or the Continental
Tobacco Company; sometimes because we saw in a
dormant brand great possibilities of development;
sometimes because a brand had achieved a sudden
popularity without pushing; sometimes because we
needed the large supply of tobacco leaf which a
factory happened to have on hand; sometimes be-
cause the factory had an eaceptionally good loca-
tion; sometimes because the business was conducted
upon a different selling plan; and sometimes be
and the transfer to it of the respective properties
of the competitors in exchange for stock of the
vendee corporation, or for cash;
(2) The purchase by a corporation of the prop-
erty of a competitor directly, or the purchase by
such corporation of the whole or part of the capital
stock of such competitor, generally for cash, but
in one or two instances in exchange for the shares
of the capital stock of the purchasing corporation;
(3) The purchase by a tobacco manufacturing
company for cash of all or a part of the capital
stock of a corporation engaged in the.manufacture
of materials used by the vendee company, such as
wooden boxes, cloth bags, licorice paste, &c.
(4) The purchase by a tobacco manufacturing
company for cash of all or a part of the capital
stock of a mercantile corporation engaged in sell-
ing at wholesale or retail manufactured tobacco, or
the products of tobacco.
Now, the judgment below did not condemn the
two last transactions-which we may call the two
minor transactions-but it did condemn the two
major transactions, on the sole ground that com-
petition in either case had been suppressed, and
that any suppression of competition, no matter how
brought about, and even by the purchase of a com-
petitor, was a violation of the Sherman Act.
Different Products of Tobacco Not Competitive.
Your Honors must not assume from the general
statement of the character of the transactions
shown that each consolidation and each purchase in
this Record was a consolidation or purchase of cofti-
petitors. The peculiarities of the tobaceo busi-
ness really put it in a class by itself. There are
so many varieties of tobacco, so many different
grades of the same general variety, such differenceg
I
0
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36
nation of competition is not the test of violation of
the Sherman law. We unite with the Government
now in saying to this Court that every contract or
arrangement which causes the elimination of a
competitor is not necessarily unlawful, and that a
concentration of competing businesses occurring as
an incident to orderly growth and development
with its resulting power over prices does not offend
the Act, even if competition previously existing is
terminated. And we say, as I have just endeavored
to point out to you in giving the story of the birth
and growth of the American Tobacco Company,
that the history of the development of this Company
is the history of the.lawful and orderly growth and
development of a great business.
You will search in vain to find in this Record any
of the transactions which this Court has condemned
fn many decided cases. There is nothing here such-
as was denounced in the Addyston Pipe & Foundry
case, or in Montague vs. Lowry, or in the Conti- '
nental Wall Paper case, or in many of the decisions
in the Federal courts where contracts between inde-
pendent manufacturers not to compete or to main- `
tain price, or to divide territory, have been con-
denmed. There is certainly no evidence in this +
Record of a plan or scheme to restrain trade such ae j
Mr. Justice Holmes pointed out in the Swift ease,
or such as Mr. Justice Mcgenna pointed out in ';
the Shawnee case.
GoVernIDCLY's Present Position.
.
What, now, are the contentions of the Gioveru-.
ment? I confess that I have found some difficnlty.:
In comprehending them. The best we are able to do'
with regard to the first section is this. * Our vi
of the present attitude of the Government witb
respect to the first section is as follows:
First. Although competition may be el3mina
by the purchase of competitors, and although tb
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34
Court that in the Northern Securities case the rail-
roads were under the legal duty of competition, and
the duty of continued existence in competition,
while no such duty rests upon manufacturers, who
may wind up their business and retire from trade at
any time. We pointed out to the Court the Ian-
guae.e, of the first section of the Anti-Trust Act,
which condemned combinations in the form of trust
or otherwise, and argued that this Court had de-
cided that the formation of the Northern Securities
Company was little different from the.formation of
a trust which had existed at the time of the passage
of the Anti-Trust Act. For the Court held that the
Northern Securities Company was but a custodian
or trustee, and practically that the shares of stock
of the Northern Securities Company were equiva
lent to the certificates of interest, which in the i
former trust had been issued by the trustees who a
held the stocks of competing companies.
All this, I say, we argued; but the Government ?
contended in the Court below that the suppression
of competition, whether by the formation of a cor- '~
poration, or whether by the purchase of a com- `
petitor, constituted a violation of the Sherman law; ;
and the Court so held, even going to the extent of
saying that, the formation of a partnership by two 'I
ezpressmen who were conducting a small trade
across State lines was a violation of the Act. ~
Government's Changed Position.
I am not at all surprised that upon this argument
the Government has beat a swift retreat, or that
stands aghast at the consequences of its own cam
tention. But the fact remains that the decision a
the Court below was brought about because of
insistence of the learned Assistant Attorney
eral that this Court had established the rule of
petition in all cases, even for manufacturers,
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course, if we are the Attorney-General will say so.
These are the two propositions:
First. Although competition may be eliminated
by the purchase of competitors, and although there
may be a concentration of competing businesses
brought about by orderly development without
violating the Act, yet the Record in this case shows
an actual intention to restrain trade.
Second. Such actual intention to restrain trade
is, however, not very material; and if the evidence
of such actual intention is not to be found in the
Record, nevertheless, the Act is violated because
the necessary effect of the defendant's busi
ness operations is to directly impose material re-
straints upon interstate commerce by the suppres-
sion of free competition in what is called its broad
and general sense.
No Intention to Restrain Trade.
Now, let us take them up in order. Where does
the Government discover in this Record any such
actual intention to restrain trade? You certainly
cannot discover it in the history of the organization
of the American Tobacco Company in 1890-a law-
ful consolidation at the time-a lawful consolida-
tion brought about for the purpose of fostering
the trade of the parties interested. You certainly
cannot discover it in the fact that afterwards it
made purchases which were really necessary to
preserve the existence of the Company, such as
ping, smoking tobacco and little cigars, to meet the
prejudice which had arisen against paper cigar-
ettes. Yon certainly cannot discover it in the sale
of our plug business to the Continental Tobacco
Company, or in the sale of our snuff business to the`
Snuff Company, or in the sale of our cheroot busi-
ness to the Cigar Company.
We never bought to suppress competition.
Mr. Justice Mcgenna: That is another proposi-
58"53S7
cause there was an opportunity to purchase on
account of death or a desire to withdraw from busi-
ness. But always it was for reasons which would
appeal to business men who were anxious and able
to develop and expand along lines with which they
were familiar,
Now, if you cannot discover evidences of actual
intent in these purchases and original consolida-
tion, where do you discover it?
The Covenants.
Thelearned Attorney General says:
"We discover it in the covenants which you
took from the vendors. You took in almost
every instance from the vendors a covenant,
upon the sale of the business, or the brand,
not to engage in business within a certain
territory for a certain time; and the fact that
you took so many of those covenants is evi-
dence of your intention to restrain trade."
The facts in regard to the covenants were these:
There were no covenants taken from the original
manufacturers who transferred their business to the
American Tobacco Company; but experience soon
showed that if the value of the business and brand
transferred was to be preserved covenants were
necessary.
Mr. Justice 11fcIienna: Will you repeat that,
please?
Mr. Nicoll t I say, there were no covenants taken
from the original manufacturers who transferred
their business to the American Tobacco Company;
but experience soon showed that these covenants
were necessary if we were to preserve the value of
the business. The covenants required the cove-
nantor not to engage in business in competition
with the property transferred for a given period of
time, and practically throughout the United States.
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Were they reasonable covenants? Certainly the time
was reasonable, the period being from one to fifteen
years. Was the space reasonable? The evidence in
this case shows that the brands are sold all over the
United States; that Virginia tobacco is popular in
New England; that the tobacco manufactured in
the Carolinas has its greatest sale on the Pacific
Coast. So that to preserve the brands the cove-
nants must be extensive. But more important than
that, as bearing on the question whether or not
these covenants were taken for the purpose of re-
straining trade, is the fact that no covenants were
taken from men who were skilled in the tobacco
business. We took covenants from the owners of
the business, whose names were often identified with
the trade-mark, such as "Blackwell's Durham to-
bacco," "Bpaulding & Merrick's tobacco," "Anar-
gyros' Cigarettes," and other instances of that sort.
Many manufacturers of tobacco use their own
names, and make it a part of the trade-mark. So,
of course, we took the covenants from the owners
of the business, but not from the men who were
actually capable of manufacturing the tobacco. At
all stages of our growth and development there ex-
isted, and there exists to-day in the United States,
thousands and thousands of men who were brought
np in the tobacco business, and who are able to go
into it whenever the occasion serves.
This practice of taking covenants was the result
of a bitter experience on our part In 1890 we
bought from the J. Wright Company, of Richmond,
all its brands, including one entitled "Winner,"
one called "Pride of Virginia," and one called "Mas-
ter Workman." The gentlemen in the J. Wright
Company took our money and immediately organ-
ized the United States Tobacco Company; and put
ont an advertisement that they were manufacturing
a brand called "Central Union," which they claimed
was precisely the same thing as the brand called
Britain differentiated against us, so that it became
impossible for us to sell any manufactured Ameri-
can tobacco in Great Britain without buying a faN
tory there. Therefore we bought Ogdena, Limited,
and paid for it $5,500,000 in cash. The English
people, alarmed by the American invasion, organ-
ized the Imperial Tobacco Company by uniting a
large number of the tobacco manufacturing plants
in Great Britain. A trade war, begun by the Im-
perial Company, followed, which existed for some
time at a considerable loss. Finally, the conflict
was ended in this way:
We sold Ogdens, Limited, to the Imperial To-
bacco Company, for stock of the Imperial Tobacco
Company, most of which we have since sold. At the
time when this case was heard we had left only five
per cent. of the Imperial Tobacco Company's stock.
Much is said about the fact that we bought Og-
dens, Limited, for $5,500,000 and sold it for $13;
000,000. But my learned friend evidently forgets
the millions of dollars that we spent on Ogdens from
the time of our purchase until the time of the set-
tlement. At all events, we made the best trade we
could with the Englishmen.
The Imperial Tobacco Company, in turn, sold
us their business in the United States. Of course,
it did not amount to as much as our business in
Great Britain, because our tariff was so high that
no English manufacturer could do much business
in this country. But still, they had some. We sold
our business, and they sold their business. When
we sold the actual properties, we sold what waa of
much more value than the actual properties: We
sold to the Englishmen and the Imperial Company
the right to use our brands in England, and they
sold to us the right to use their brands in the
United States. It was a transfer of great and vaiu-
able properties. And as an incident to the sale, in
either case a covenant was entered into not to com-
0
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32
a consolidation of competitors, and that every pur-
chase was a purchase of competitors.
Mr. Justice McKenna: Will you repeat that?
Mr. Nicoll: I say, the theory of the Government
throughout has been that every consolidation was
a consolidation of competitors, and that every pur-
chase was a purchase of competitors. But I say
that a careful examination of this Record will
show, for the reasons which I have stated, that even
in the original organization of the American To-
bacco Company and the subsequent organization of
the Continental and Snuff Companies, there was
much less elimination of competition than would
naturally be supposed; while the additional plants
and brands purchased were often not. in competi-
tion at all with the business to which they were
added.
The American Tobacco Company, as it stands to-
day, is not an aggregation of competing plants. It
is rather an association in one company of the dif-
ferent non-competitive departments of the tobacco
trade.
No Transaction Shown Violates First Section.
Coming now to the transactions shown, and with-
out discussing whether or not these transactions
relate directly to commerce, or whether they relate
to anything but the instrumentalities of prodnc-
tion as distinguished from the instrumentalities of
commerce, we contend that these transactions ar0
not contracts, combinations, or conspiracies within `
the meaning of the anti-trust law. It is a matter of ~
history that after the Trans-Missouri case, the busi- .;
ness interests of this country became greatly .a
alarmed, and sought to obtain in the Joint TrAffic ;
case a modification of that decision. Wbile the ;
Court adhered to its former judgment, the late ±
lamented Mr. Justice Peckham, who rendered the
opinion of the Court, took occasion to say cexdain
s8s95351
42
''Winner," which they had sold to us; that their
brand "Pride of the East" was the same thing as
"Pride of Virginia" which they had sold to us; and
that their brand "U. S. Plug" was the same as
"Master Workman" which they had sold to us (Vol.
II, pp. 705-6).
We had still another experience: After we
bought Liggett & Myers, Mr. Moses C: Wetmore,
who had been the president of that company, and
who had received part of the proceeds which we
had paid, organized the Wetmore Tobacco Com-
pany, and announced to the public that, notwith-
standing the fact that he had sold to us the "Star"
brand, which was the great brand of Liggett &
Myers, that he had preserved the formula, and that
he was now proposing to manufacture the same
brand under the same formula with the same em,,
ployees that had been employed by Liggett & Myers
(VoL IV, pp. 446-7).
We had still another experience in the case of
the Scotten-Dillon Tobacco Company. Upon the
organization of the Continental Tobacco Company
in 1898, Mr. Daniel Scotten had transferred the
property of this company to the Cotinental Tobacco
Company. We took from him a covenant for a
year or a year and a half. At the expiration of that
time he came to the American Tobacco Company
and bought the factory of the old company in De-
troit. We had ceased to use it, manufacturing the ;
brands, for economical purposes, elsewhere. We ;
actually sold him the factory to go into business, a'
very generous act on the part of these conspirators ~
against trade and commerce. We sold him the fac- 1y
tory, and he proceeded to go into the manufacture of r;
ping and smoking tobacco, and announced to the ''
trade that he was prepared to manufacture a full
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may be a concentration of competing businesses
brought about by orderly development without vio-
Iating the Act, yet the Record in this case shows
an actual intention to restrain trade.
Second. Such actual intention to restrain trade
is, however, not very material; and if the evidence
of such actual intention can not be found in this
Record, nevertheless, the Act is violated because the
necessary effect of the defendants' business opera-
tions is to directly impose material restraint upon
interstate commerce by the suppression of free
competition in what is called its broad and general
sense.
Your Honors interrogated the learned Assistant
Attorney-General yesterday about his position. I
have spelled out the present position of the Govern-
ment relying upon quotations from the brief, and
have put it in those two propositions. Now, let
us take them up in order.
The Chief Justice: Just read the propositions
again.
Mr. Nicoll: The two propositions?
The Chief Justice: Yes.
Mr. Justice McKenna: Are these propositions
stated as you are now stating them in your brief?
Mr. Nicoll: Are they in my brief?
Mr. Justice McKenna: Yes.
Mr. Nicoll : No; they are not in my brief. This
is my argument, after reading the Attorney-Gen-
eral's brief.
The Chief Justice: That is what I am trying to
get at. I ask yon to restate them.
Mr. Nicoll: I will state them. Your Honors
understand that this is our interpretation of the
Government's present position?.
Mr. Justice Mcgenna: Yes.
Mr. Nicoll : We may be wrong as to that; but, of
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35
Now, the Government has changed its position.
The main brief, which bears the signature of the
Attorney-General and the learned Assistant Attor
ney-Oeneral, repudiates the decision of the Court
below altogether, and seeks to maintain the decree
upon different grounds. They say (pp. 52-8 of their
brief) :
"Of course we do not insist that every contract or
arrangement which causes the elimination of a com-
petitor in interstate trade is necessarily unlawful.
The statute was intended to foster, not destroy,
business operations, universally regarded as pro-
motive of the public welfare.
"Accordingly, we do not avouch, and will not at-
tempt to support the extreme construction of the
Act adopted by the presiding judge below under
which he declared, in substance, that it would be
unlawful for any two individuals driving rival ez-
preas wagons between villages in contigaous States
to combine forces by forming a partnership," and eo
forth, as I have quoted it
And in another part of the brief, at page 99, we
find this statement of the Ciovernment'e present
position: That even a concentration of competing
businesses, resulting in power to control prices or
etifle competition, is not within the Act, provided
the concentration occurs as an incident to the or-
deriy growth-and development of one of them.
Mr. Justice Lurton: From what page do you get
that?
Mr. Nicoll: From page 99 of the brief for the
United States. These are important concessions
which, in my judgment, ought to result in a reversal
of the judgment and dismissal of the qovesnment'a
bill. The new contentions which the Government
now puts forth, as we understand them, are equally
untenable. At all events, we unite with the Govern-
ment in a repudiation of the opinion of the Court
below. We join with them in stating that the elimi-
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