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
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
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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
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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
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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
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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
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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
