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them or exercising control over the issuing company, and the latter from permitting this; and (c) because the American Tobacco Company, Ameri- ; can Bnuff Company, American Cigar Company, American Btogie Com- ~; pany and the MacAndrews & Forbes Company were adjudged unlawful .4 .~ and character of the suit and the defense thereto, the decree of the lower oombinations and restrained from engaging in interstate and foreign com- merce. The elaborate arguments made by both sides at bar present in many forms of statement the conflicting contentions resulting from the nature court and the proposrtions asagned as error to which we have,lust referred. In so far as all or any of these contentions, as many of them in fact do, involve a conflict as to the application and effect of sections 1 and 2 of the Anti-trust Act, their consideration has been greatly simplified by the analysis and review of that act and the construction affized to the sec- tions in question in the case of Standard Or•l Company et al. v. United Statea, quite recently decided. In so far as the contentions relate to the disputed propositions of fact, we think from the view which we take of , the case they need not be referred to, since in our opinion the case can be disposed of by considering only those facts which are indisputable and by applying to the inferences properly deducible from such facts the meaning and effect of the law as expounded in accordance with the pre- vious decisions of this court. We shall divide our investigation of the case inA _Qlrceau c_s: First, the undisnu _c e meaning of the Anti-trust law a di~~a~ plication as correctly construed to the nlt~ onclusiona of factsleri~ cible from the proof; third thp ~~TriPr] di d d ` Fi t tT rst ii spu e fa .,. a T~e matUMT5-B6-c6_n8_i'Tered under this heading we think can best be made clear by stating the merest outline of the condition of the tobacco industry prior to what is asserted to have been the initial movement in the combination which the suit assails and in the light so afforded to briefly recite the history of the assailed acts and contracts. We shall divide the subject into two periods, (a) the one from the time of the or- F ganization of the first or old American Tobacco Company in 1890 to the orzanization of the Continental Tobacco Company, and (b) from the date of such organization to the filing of the bill in this case. the conditions which• obtained 8ummarizin in the broadest wa y g ~ ; prior to 1890, as to the production, manufacture and distribution of to- bacco,the following general faeta are adequate to portray the situation. Tobacco was, grown in many sections of the eountry, having diversits j of soil and climate and therefore was subject to various vicissitudes re- sulting from the places of product,on and consequently varied in quality.

The great diversity of use to which tobacco was applied in manufacturing caused it to be that there was a demand for all the various qualities. The demand for• all qualities was not local, but widespread, extending as well to domestic as to foreign trade, and, therefore, all the prducts were marketed undercompetitive eonditione of a peculiarly advantageous nature. The manufacture of theproduct in this country in various forms was success- fally earried on by many individuals or concerns ecattered throughout the oountrq, a larger number perhaps of the manufacturers being in the vicinage of production and others being advantageously situated in or near the principal markets of distribution. fore Januai , 1890 five distinct e 1sa~rns-Allen & Ginter, with faotory at Richmon Va. ; W-Duke, Sons & Co., with factories at Dur- 'rham, North Carolina, and New York City ; Kinney Tobacco Company, with factory at New York City ; W. S. Kimball & Company, with fac- tory at Rochester, New York ; Goodwin & Company, with factory at Brooklyn, New York-manufactured, distributed and sold in the United Btates and abroad 95 per cent of all the domestic_cigarxette and less than 8 cent of the smo~mg tobacco ~roduced in the United s~. There ie no ou t. that t ese actones were competitors in the purchase of the raw product which they manufactured and in the distribution and eale of the manufactured products. Indeed it is shown that prior to 1890 not only bad normal and ordinary competition existed between the fac- tories in question, but that the competition had been fierce and abnormal. In anua , 1890, having agreed upon a capital stock of $25,000,000, all to be divi amongst them, and who should be directors, the, concerns to organized the American Tobacco Com an in N , "fo an manufacturing," with broad powers, and conveyed to it t ~u enai es, Mincluding good will and right to use the names of the old eoncerns ; and thereafter this corporation carried on the busi- neas of all. The $25,000,000 of stock of the Tobacco Company was allotted to the charter members as followN : Allen & Ginter, $3,000,000 preferned, $4,500,000 common ; W. Duke, Sons & Co., $3,000,000 pre- ferred, $4,500,000 common ; Kinney Tobacco Company, $2,000,000 pre- ferred, $3,000,000 common ; W. S. Kimball & Co., $1,000,000 preferred, $1,500,000 common; and Goodwin & Co., $1,000,000 preferred, $1,500,000 common. There is a charge that the valuation at which the respective properties were capitalized in the new corporation was enormously in excess of their actual value. We, however, put that subject aside, since we propose only to deal with facts which are not in controversy. Shortly after the formation of the new corporation the Goodwin & Co. factory was closed, and the directors ordered "that the manufacture of all ' ~ ~

12 i7nited Statea vs. dmeriaax Tobaoeo Cb. et a1L tobacco cigarettes be concentrated at Richmond." The new corporation in 1890, the first year of its operation, manufactured about two and one half billion cigarettes, that is, about 96 or 97 per cent of the total domestic out- put, and about five and one-half million pounds of smoking tobacco out of a total domestic product of nearly seventy million pounds. In a little over a year after the organization of the company it in- creased its capital stock by ten million dollars. The purpose of this in- crease is inferable from the considerations which we now state. There was a firm known as Pfingst, Doerhoefer & Co., consisting of a number of partners, who had been long and successfully carrying on the business of manufacturing plug tobacco in Louisville, Kentucky, and dis- tributing it through the channels of interstate commerce. In January, 1891, this firm was converted into a corporation known as the National•' -4 Tobacco Works, having a capital stock of $400,000 all of which was issued to the partners. Almost immediately thereafter, in the month of February, the American Tobacco Company became the purchaser of all the capital stock of the new corporation, paying $600,000 cash and $1,200,000 in stock of the American Tobacco Company. The members of the previously existing firm bound themselves by contract with the American Tobacco Company to enter its service and manage the business and property sold, and each further agreed that for ten years he would not engage in carrying on, directly or indirectly, or permit or suffer the use of his name in connection with the carrying on of the tobacco business in any form. In April following, the American Tobacco Company bought out the business of Philip Whitlock, of Richmond, Virginia, who was engaged in the manufacture of cheroots and cigars, and with the exclusive right to use the name of Whitlock. The consideration for this purchase was $300,000, and Whitlock agreed to become an employee of the American Tobacco Company for a number of years and not to engage for twenty years in the tobacco business. In the month of April the American Tobacco Company also acquired the business of Marburg Brothers, a well-known firm located at Baltimore, Maryland, and engaged in the manufacture and distribution of tobacco, principally smoking and snuff. The consideration was a cash payment of $164,637.65 and stock to the amount of $3,075,000. The members of the firm also conveyed the right to the use of the firm name and agreed not to engage in the tobacco business for a lengthy period. Again, in the same month, the American Tobacco Company bought out a tobacco firm of old standing, also located in Baltimore, as G. W Gail & Ax, engaged principally in manufacturing and selling smoking tobacco, buying with the business the exclusive right to use the name -of I I r

Unit.cd Stai,us vs. dmerioan Tobaeoo Co. et al. 13 the firm or the partners, and the members of the firm agreed not to en- gage in the tobacco business for a specified period. The consideration for this purchase was $77,582.66 in cash and stock to the amount of $1,760,000. The plant was abandoned soon after. The result of these purchases was manifested at once in the product of the company for the year 1891, as will appear from a note in the margin.* It will be seen that as to chervots, smoking tobacco, fine cut tobacco, snuff and plug tobacco, the company had become a factor in all branches of the tobacco industry. Referring to the occurrences of the year 1891, as in all respects typical of the occurrences which took place in all the other years of the first period that is during the years 1892, 1893, 1894, 1895, 1896, 1897 and 1898, we content ourselves with saying that it 'is undisputed that be- .tween February 1891. and October, 1898, including the purchases which we have specifically referred to, the American Tobacco C ' d fifteen going tobacco con xas doing business in the States of Kentucky, Louisiana, Marytand, Michigan, Missouri, New York, North Carolina aad Virginia. For ten of the plants an all cash consideration of $6,410,235.26 was paid, while the payments for the remaining five aggregated in cash $1,115,100.95 and in stock $4,123,000. It is worth noting that the last purchase, in October, 1898, was of the Drummond Tobacco Company, a Missouri corporation dealing principally in plug, for which a cash con- sideration was paid of $3,457,500. The corporations which were combined for the purpose of forming the American Tobacco Company produced a very small portion of plug to- bacco. That an increase in this direction was contemplated is mani- fested by the almost immediate increase of the stock and its use for the purpose of acquiring, as we have indicated, in 1891 and 1892 the owner- ship and control of concerns manufacturing plug tobacco and the con- ~ The output of the American Tobacco Company for 1891 was-- ~ Number. Pounds. Cigarettes ..................................... 2,788,778,000 ...... Cheroots and little cigars ...................... . 40,009,000 ...... Bmoking ...................................... ...... . 13,813,355 Fine cut ........ ............................. ...... 560,633 Snuff ......................................... ...... 383,162 Plug .......................................... ...... 4,442,774 Total output for the United States, 1891- Cigarettes .....................................3,137,318,596 ...... Smoking ................................... _. ...... 76,708,300 Fine cut .....................:................ ...... 16,968,870 Plug and twist ................................ ......' 166,177,915 Snuff ........................................ ...... 10,674,241

14 United ISlafea vs. American Tobacco !'.o. et al. sequent increase in that branch of production. There is no dispute that as early as 1893 the president of the American Tobacco Company, by authority of the corporation, approached leading manufacturers of plug tobacco and sought to bring about a combination of the plug tobacco interests, and upon the failure to accomplish this ruinous competition, by lowering the price of plug below its cost, ensued. As a result of this warfase, which continued until 1898, the American Tobacco Com- pany sustained severe losses aggregating more than four millions of dollars. The warfare produced its natural result, not only because the company acquired during the last two years of the campaign, as we have stated, control of important plug tobacco concerns, bu't others engaged in that industry came to terms. We say this because in 1898, in connection with several leading plug manufacturers, the American Tobacco Company organized a N~gw cor ration st led the Continental TobaccoCom- panYifor " trading and manufacturing," with a capita o , , afterwards increased to $100,000,000. The new company issued its stock and took transfers to the plants, assets and businesses of five large and successful competing plug manufacturers.* The American Tobacco Company also conveyed to this corporation, at large valuations, the assets, brands, real estate and good will pertaining to its plug tobacco business, including the National Tobacco Works, The James G. Butler Tobacco Co., Drummond Tobacco Company, and Brown Tobacco Co., receiving as consideration $30,274,200 of stock (one-half common and one-half preferred), $300,000 cash, and an additional sum for losses sustained in the plug business during 1898, $840,035. Mr. Duke, the -president of the American Tobacco Company, also became president of the Continental L:oiupany: Under the preliminary agreement which was made looking to the formation of the Continental Tobacco Company, tha comRan a uired fr=_t_beholdet's_ a1_1_tbe. $$ 000 000 of the common stock of the P. Lorillard Companp in_eschange for $6,000,M0 of its stock, and 81,581,300 o t e $2,000,000 preferred in exchange for notes aggregating a sum considera- bly larger. The Lorillard Company, however, although it thus passed * P. J. Sorg Co., having factory at Middletown, Ohio, who received preferred stock $4,350,000, common stock $4,525,000, and cash $224,375. John Finzer and Brothers, having factory at Louisville, lientucky, who re- ceived preferred stock $2,250,000, common stock $3,050,000, and cash $550,000. Daniel Scotten & Co., having factory at Detroit, Michigan, who received preferred stock $1,911,100, and common stock $3,012,500. P. H. Mayo & Bros., having dactory at Richmond, Va., who received pre- ferred stock $1,250,000, common stock °".,92,1,000 ard cash $66,125. John Wright•Co., having factory at Richmond, Va., who received preferred Qcock $495,000, common atock:495,000, and oash $4,116.67.

Zlnited &atu va dmerioau Tobacco Co. et al. 15 practically under the control of the American Tobacco Company by vir-- i tue of its owqerahip of stock in the:Continental Company, was } t ligui- ` d as a distinrjl_crr dated, but its business continued to be oonducte Yaon, its goods being marked and nu_~ t T_uuon the market just as if they were the manufacture of an independent concern. -p otl-owi'ng t~e organization of the Continental Tobacco Company the American Tobacco Company increased its capital stock from thirty-five • millions of dollars to eeventy millions of dollars, and deplared a stock dividend of one hundred per cent on its common stock, that is, a stock dividend of $21,000,000. As the facts just stated bring us to the pnd of the first period which at the outset we stated it was our purpose to review, it is we rieHy to point out the increase in the power and control nf the American Tobacco Company and the extension of its activitips_to all forms of tobacco pro- ducts which bad been accomplished just prior to the organization of the Continental Tobacco Company. Nothing could show it more clearly than the following: At the end of the time the company was manufa.c- turing ei h_~per cent or thereabouts of all the ci aret produced in the United Ctatee,a ove -s~g er cent of 'aII the smokine tobacco, more than twent -tw per cent of all plug tobac~c , fifty-one per cent of a11 little cigars, six per cent each of all snuff and fine cut to co, and over two per cent of all cigars and cheroots. A brief reference to the occurrences of the second period, that is, from and after the organization of the Continental Tobacco Company up to the time of the bringing of this suit, will serve to make evident that the trans- actions in their essence had all the cbara.cteristics of the occurrences of the first period. In the year 1899 and thereafter either the American or Continental Companies, for cash or stock; at-an aggregate cost of fifty millions of dol- lars ($50,000,000), bought and closed up some thirty competing corpora- tion-s and partners._li pa. theretofore engaged in interstate and fore'ign com= merce as manufacturers, sellers, and distributors of tobacco and related commodities, the interested parties covenanting not to engage in the busi- ness. Likewise the two corporations acquired for cash, by issuing stock, and otherwise, control of many competing corporations, now going concerns, with plants in various States, Cuba and Porto Rico, which manufactured. bought, sold and distributed tobacco products or related articles through- out the United States and foreign countrlea, and took from the parties in interest covenants not'to engage 'in the tobacco business. The plants thus.acquired were, operated until. the mer¢®r in-1904. to which we ehall hereafter refer, as 'a part of the general system of the American and Continental •companies. The power resulting from and

16 , tlnited Statea vs. American Tobacco Co. et al. the purpose contemplated in making these acquisitions by the companies just referred to, however, may not be measured by considering alone the busi- ness of the company directly acquired, since some of those companies were made the vehicles as representing the American or Continental Company for acquiring and holding the stock of other and competing companies, thus amplifying the power resulting from the acquisitions directly made by the American or Continental Company, without ostensibly doing so. It is 'a besides undisputed that in many instances the acquired corporations with , the subsidiary companies over which they bad control through stock own- ship ship were carried on ostensibly as independent concerns disconnected from either the American or the Continental Company, although they were controlled and owned by one or the other of these companies. Without going into details on these subjects, for the sake of brevity, we append in the margin a statement of the corporacions thus acquired, with the men- tion of the competing concerns which such corporations acquired.* * Monopol Tobacco Works (New York, N. Y. )-Capital $40,000-cigarettes and smoking tobacco. In 1899 the American Tobacco Co. acquired all the shares for $250,000, and it is now a selling agency. Luhrman & Wilbern Tobacco Company (Middletown, Ohio)-Capital f9Q0,000-scrap tobacco. This business was formerly carried on by a part- nership. Mengel Box Company ( Louisville, Ky. )-Capital $2,000,000-boxes for packing tobacco. This company has acquired the stock ($150,000) of Colum- bia Box Company and of Tyler Box Company ($25,000), both at St. Louis. The Porto Rican-American Tobacco Company (Porto Rieo)-Capital $1,799,600. In 1899 the American Company caused the organization of the Porto Riean-American Tobacco Company, which took over the partnership business Rucabado y Portela-manufacturer of cigars and cigarettes-with covenants not to compete. The American Tobacco Company and American Cigar Company eaoh hold $585,300 of the stock; the balance is in the hands of individuals. Kentucky Tobacco Product Company (Louisville, Ky. )-Capital $1,000,000. In 1899 the Continental Company acquired control of the Louisville Spirit-Cured Tobacco Co., engaged in curing and treating tobacco and utilizing the stems for fertilizers. By agreement, the Kentucky Tobacco Product Company was or- ganized in New Jersey, with $1,000,000 capital, $450,000 issued to the old stockholders, and $560,000 to Continental Company as consideration for agree- ment to supply stems. Golden Belt Manufacturing Company (North Carolina)-Capital, $700,000- cotton bags and containers. In 1899 the American Tobacco Company ac- acquired the business of this corporation, which was formed to take over a going business. : " •-The Conley Foil Company (New York)-Tinfojl Combination-Capital, $825,000. In December, 1899, The American Tobacco Company secured con- trol of the business of John Conley & Son (Partnership), New York, N. Y.,

UniEsd BEdes vs. dmerican Tobacco Co. et al. 17 It is of the.utmost importance to observe that the acquisitions made by the subsidiary corporations in some cases•likewise show the remarkable fact stated above; that is, the dMursement of enormous amounts of money to aoquire plants. which on beine purchased were not utilized but were immediately closed. It is also to be remarked, that the facts stated in the memoran um in the margin show on their face a singular identity between the conceptions which governed the transactions of this latter period with those which evidently existed at the very birth of the original organization of the American Tobacco Company, as exemplified by the • I transactions in the first period. A statement of particular transactions outside of those previously referred to as having occured during the period in question will serve additionally to make the situation clear. And to accomplish this purpose we shall, as briefly as may be consistent with clarity, separately refer to the facts concerning the organization during the second period of the five corporations which were named as defendants in the bill, as heretofore stated and which for the purpose of designation we have hitherto classified as ac:esssory defendants, such oor- manufacturers of tinfoil, an essential for packing tobacco products. By agree- ment the Conley Foil Company was incorp-rated in New Jersey " ° for trading and manufacturing," etc., with $250,000 capital (afterwards $375,000 and 5825,000)-which took over the firm's business and assets, etc., and The Ameri- can Tobacco Company became owner of the majority shares. The Conley Foil Company has acquired all the stock of the Johnson Tinfoil & Metal Company- a defendant-of St. Louis, a leading competitor, and they supply under fixed contracts, the tinfoil used by defendants. R. J. Reynolds Tobacco Company (Winston-Salem, North Carolina). In 1899 the Continental Tobacco Company acquired control of the R. J. Reynolds Tobacco Company, one of the largest manufacturers of plug-output in 1898, 6,000,000 pounds. By agreement, a new corporation (with same name) was organized in New Jersey and capitalized at :- r"v,000 (afterwards $7,525,000), which took over the business and assets of the old one. The Continental Company immediately acquired the majority shares and The American Com- pany now holds $5,000,000 of stock. The separate organization has been pre- served. There was acquired in the name of the new Reynolds Company, with cove- nants against competition, the following plants: In 1900, T. L. Vaughn & Company, partnership, of Winston, N. C.; consid- eration, b90,5o6; Brown Brothers Company, a North Carolina corporation, Winston, N. C.; consideration, $67,615; and P. H. Hanes & Company and B. F. Hanes & Company, Wineton, N. C., partnership ; consideration, E671,950. In 1905, Rucker & Witten Tobacco Company, . Martinsville, Va.; coneidera- tion, $512,898. In 1906,• D. H. Spencer & Company. Martinsville, Va.; consideration, $314,255. (All of the foregoing plants were closed as soon as purchased. ) A majority of the $400,000 capital stock in the Lipfert-8cales Company, of t6:

13 I7nited S`Ecctes ve. Amerioan Tobacco Co. et at. porations being the American Snuff Company, American Cigar Company, American Stogie Company, MatAndrews & Forbes Company (licorice), and Conley Foil Company. (1). The American Snuff Company. As we have seen, the Ameriran Tnhanrn Compan~• at the oommence- ment of tl~e first ceriod nrndnrPd a vr.~* xmall rinant.i Sy of snufi Itr~Ca- pacits botivever, in that regard was augmented owing particularly to the formation of the Continental Tobacco Com.pany' and the acguisition of thp Lorillarrd Companf. by which it came to be , a serious factor as a snnff producer. There shortly ensued an aggressive eompetition in the snuff business between the American Tobacco Company, with the force acquired from the vantage ground resulting from the dominancy of its expanded organization, and others in the trade operating independently of that or- ganization. The result was identical with that which had previously arisen from like conditions in the past. In March, 1900, there was organizeA in New Jersey a corpora.tien known as The American Snuff Cqmvanv with a capital of $25,000,000, Winston, N. C., a corporation largely engaged in the manufacture of plug to- bacco and interstate'and foreign commerce in leaf tobacco and its products, was acquired by the Reynolds Company. The separate organization of the Lipfert-Scales Company is preserved and the business carried on under its corporate name. The R. J. Reynolds Tobacco Company also holds $98,300 stock of the ?41acAndrevs & Forbes Company and $9,600 of the Amsterdam Supply Com- pany. Blackwell's Durham Tobacco Company (Durham, N. C. )-Capital $1,000,000. In 1899 The A merican Tobacco Company procured for $4,000,000 all the stock of Blackwell's Durham Tobacco Company at Durham, N. C., manufacturer and distributor of tobacco products. Thereupon the Blackwell's Durham To- bacco Couipany, of New Jersey, capitai, $1,000,000, all owned by the American, was organized and took over the assets of the old company, then under re- ceivership. Its separate organization has been preserved. The Durham Company has acquired control of the following competitors- Reynold's Tobacco Company; F. R. Penn Tobacco Company; and Wells- Whitehead Tobacco Company. The following companies came also under the control of the American To- bacco Compauy through acquired stock ownership. S. Anargyros---capital $650,000-Turkish cigarettes. In 189Q The American Tobacco Company procured the organization of corporation of S. Anargyros, which took over •that individual's going business and has since controlled it. Through this company the business .: TtirkiE:) cigarettes is largely con- ducted. The John Bollman Company ( 8an Francisco )-capital E2ll0,00U--cigar- ettes. In 190o The American Tobacco Company procured organization of The John Bolhman Company, which took over the business of the former camcern in exchange for stock. Its separate organization has been preserved. r. I k

__..o-..----~---- - United States vs. dmcrioau Tobacco Co. et al. 19 one-half preferred and one•half common, which t,ook over the Bnuff' hnsi- ness of the P Lorillard Company Continental Tobaern Companv and The American Tobacco Company, with that of a large competitor, viz : The Atlantic Snuff Co. The stock of the new company was thus ap- portione : t antic Snuff Company, preferred, $7,500,000, common, =25,000,000 ; P. Lorillard Company, preferred, #1,12,4,700, common, $3,459,400 ; The American Tobacco Company, preferred, $1,177,800, common, $3,227,500 ; Continental Tobacco Company, preferred, $197,500, common, $813,100. The stock issued to Continental Tobacco Com any and the defendants, P. Lo Company, is still held h• ar P. A mP A DDa~ n- trolling interest in the Snuff Company. All the companies, together with their officers and directors, covenanted that they would not there- after engage as competitors in the tobacco business or the manufacture, sale, or distribution of snuff. Among the assets transferred by the Atlantic Snuff Company to Ameri- can SnuffCompany were all the shares ($600,000) of W. E. Garrett & Sons, Inc., then and now one of the oldest and very largest producers of snuff, for a long time and still engaged at Yorkland, Del., in interstate and for- eign commerce in tobacco and its products, and which controlled through stock ownership the Southern Snuff Company, Memphis, Tenn. ; Dental Snuff Company, Lynchburg, Va., and Stewart-Ralph Snuff Company, Clarksville, Tenn. The separate existence of W. E. Garrett & Sons, Inc., has been preserved arid its business conducted under the corporate name. In March, 1900, the American Snuff Company acquired all the shares of George W. Helme Company, one of the oldest and largest pro- ducers of snuff and actively engaged at Helmetta, N. J., in interstate and foreign commerce in competition with defendants, by iesuing in ex- change therefor $2,000,000 preferred stock and $1,000,000 common ; and it thereafter took a conveyance of all assets of the acquired company and now operates the plant under its own name. As a result of the transactions just stated it came to pass that the American Tobacco Company, which had at the end of the first neriod only a very small rcenta of the snuff manufacturin business, came virtua j to ave the dominant control as a manufacturer of that product. 2. 04 ot mpany-manufadterers of tinfoil, an essential for pack- ing tobaoeo products. In December, 1899, the American Tobacco Company secured control of the business of John Conley & Sons, a partnership of New York City. By agreement the Conley Foil Company was incorporated in New I ork " ° for trading and manufacturing," etc., with $250,000 capital, ultimately incre.ased to $825,000. The corporation took over the business and assets of the firm, and the American Tobacco Company became owner of a ma- € PW