Such money was then to be distributed among those confining themselves to the production allotted to them. On its face, the agreement thus appears to be for division of output, but such was not in reality the case. The significance of the agreement can be appreciated only when it is known that the amount set opposite the names of the various signatories (which does not appear in the text of the original agreement) was 100 gallons each, an amount so small that no distillery could afford to begin operations. It is thus seen that in reality the pool was purely for curtailing output, and did not in any sense contemplate a division of output.

III. Territorial division.-The United Refining Company, organized in the late eighties, dealt in an article which is the product of coal tar, a residuum of the gas works, and which is produced whether there is any demand for it or not. When a large surplus above demand occurred in any one section of the country the whole tendency was to "dump" that surplus upon a market in another section where there was only a moderate amount available. This tended to distribute among all the manufacturers the loss occurring through surplusage, instead of throwing it upon the party in whose territory it took place. Such a state of affairs led to a territorial agreement. Each party to the compact bound itself to confine its trade and sales to a definite territory and not to send the surplus above such trade and sales elsewhere unless it were required. In event of a large surplusage and no other concern requiring the product, the manufacturer was to destroy it by changing it into pitch, which was accomplished through distillation. The pitch was used as fuel and was also shipped abroad. The manufacturer retained for himself the oils thus secured.

IV. Joint sales.-Historically the joint-sales pool is nearly as old as the output-division pool. In the former type of organization the various manufacturers agree to employ a common sales agent through which agent the products of the combination are marketed. The first organization of this type was formed in the sixties in the salt industry.

It is probably evident to the reader that the joint-sales pool must by virtue of the function of joint selling bear a definite relation to price. The act of selling implies the fixing of a price, but the methods of price determination in pools of this type are significant. Where the selling agent has full control of the marketing of the product as appears to have been the case with the Michigan Salt Association, the parties

to the combination have no real voice in the matter of prices. An entirely different situation appears, however, when the members of the combination employing the joint-sales agent determine the prices at which their agent shall sell.

V. Price. The price pool scarcely calls for definition since the majority of people are more familiar with this manifestation of combination than with any other. It is simply an organization for the purpose of fixing and controlling prices. Its earliest appearance, at least in the simple form, seems to have been in the Gunpowder Trade Association of the United States, an organization perfected April 29, 1872, in New York City. The purpose of the combination was to fix and establish prices upon powder throughout the United States. Each of the seven parties to the agreement was entitled to a certain number of votes. Three concerns were allotted ten votes each, three others, four votes each, and the last, six votes. The association was to meet four times a year for the purpose of establishing prices. A "council" of five persons was to meet weekly to adjudicate upon discrepancies in, and deviations from, prices.

VI. Clearing house.-The significant feature of the joint-sales pool is the employment of a sales agent to market the product. In the case of the clearing-house pool, on the contrary, each party to the combination retains control of the marketing of its own product, while the central organization is used simply as a clearing house for the division of the profits realized. The clearing house may be an incorporated company or a purely voluntary association.

VII. Legitimate trader. For several years past there has been noticeable an increasing tendency toward the elimination of the middleman in American business life. More and more, people are endeavoring to supply their wants directly. As this tendency develops, the retailer first finds his means of livelihood menaced and the jobber and wholesaler are also able to read the handwriting on the wall. It is out of this situation that what I term the "legitimatetrader" association has developed. This type of organization is of interest largely because of the striking contrast between its aims and methods of operation and those of the ordinary manufacturers' pool. The legitimate-trader association has in view one objectthe confining of the trade to its (in their view) legitimate channel. But this will be found to resolve itself into three separate parts: (1) to prevent shipments from the manufacturer direct to the consumer; (2) to confine the shipments of manufacturers to wholesalers and of

wholesalers to retailers; (3) to confine the trade of the retailer to his legitimate territory.

To accomplish these ends several methods have been resorted to.

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The late President Roberts, of the Pennsylvania Railroad, defines a pool as "an association of railroad companies for the purpose of a proper division of the traffic at competitive points and the maintenance of equitable rates that may be agreed upon." A great number of other functions, such as the prevention of fraud and the management of a clearing house, have in the past been intrusted to traffic associations, which at the same time exercised supervision over pooling.

These pooling agreements to divide competitive traffic may assume a number of different forms. They fall, in the first instance, into two great classes, known as traffic and money pools, respectively. The distinction between them is perfectly clear. In a traffic pool, the Lake Shore road for instance, is guaranteed let us say, 16 per cent of the east bound dead-freight-tonnage from Chicago by all its competitors. If its percentage falls for some reason to less than 16, enough tonnage is, diverted from other roads whose percentage is in excess of their allotment to make up the difference. A serious objection to this form of pool is patent. It necessitates the diversion of freight from one road to another, thereby often running counter to the expressed wish of the shipper. It seems to be proved that the amount of such variation from established percentages is usually very small, and that there is always enough freight open to shipment by any route, without expressed preference of the shippers, to obviate this difficulty. Nevertheless, it must be conceded that this objection is a real one. In order to meet it, the railroads have often preferred to organize their pools upon another basis. This second type of division is known as a money pool. Under such an arrangement the railroads severally guarantee one another a certain percentage of the total revenue accruing, either in gross or net, from the transaction of the business pooled. Under such arrangement the gross or net earnings, as the case may be, are divided in certain percentages, entirely irrespective of the amount of business which may happen to pass over the several lines. This, of course, would be unfair unless some allowance were made for the actual expense of conducting transAdapted from the Final Report of the Industrial Commission, 1902, XIX,

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329-42.

portation when the amount over a particular road happened to be greater than its particular allotment of earnings would be. Consequently, it is often customary to allow each road to handle all the traffic which comes to it naturally, but to provide that after the deduction of a certain proportion, usually 40 or 50 per cent for actual outlay, the remainder in excess of its accrued proportion shall be paid over to other roads whose proportion of business carried during the period happens to fall below their allotment. In order to accomplish this result without friction, the roads have sometimes deposited a certain sum of money with the chairman, subject to his draft.

[NOTE.-Pooling, of the sort here described, was at its height in the 70's and 80's. Such devices are not open to the railroads today.]

288. PATENTS'

Several manufacturers of harrows, under various United States patents, assigned to the National Harrow Co. the patents severally owned by them, together with good will, agreeing among other things not to be interested in the sale or manufacture of such harrows except as agents or licensees of said corporation. The National Harrow Co. issued licenses to the several manufacturers, subject to uniform terms and conditions; its licensees manufactured and sold at least 90 per cent of such harrows made in the United States. The licenses issued prohibited among other things the cutting of prices, and provided that the licensees should not sell other harrows than those authorized by the licenses.

The Standard Sanitary Manufacturing Co. and 15 other manufacturers of sanitary enameled ironware combined in the form of an association. Certain patents for enameling devices were issued to one Wayman, secretary of the association, who issued licenses to the various members of the association to manufacture such ware. Prior to this such manufacturers were independent and competitive. By agreements they subjected themselves to certain rules and regulations, among others not to sell their product to the jobbers except at a price fixed, not by competitive trade conditions, but by the decision of a committee of six of their number, of which Wayman was chairman, and sale zones were established and prices fixed in each of them. A jobber could not obtain enameled ware from any manufacturer who Adapted from United States Bureau of Corporations, Trust Laws and Unfair Competition, 1915, pp. 115-17.

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was in the combine unless he entered the combination, and the condition of entry was not to resell to plumbers except at prices fixed in the jobber's license agreement. The potency of the scheme was established by the co-operation of 85 per cent of the manufacturers, and their fidelity to it was secured, not only by trade advantages, but by a provision for the return of 80 per cent of the royalties if the agreement was faithfully observed. The jobbers also were entitled to certain rebates for the faithful observance of their engagements. It was testified that 90 per cent of the jobbers in number and more than 90 per cent in purchasing power joined the combination.

289. THE DINNER PARTY1

Article XIII of the petition alleges that—

Under the auspices of the Corporation, these interests [steel manufacturing], naturally competitive, but harmonized by this network of correlations [interlocking directorates], and overshadowed and dominated by the power of the Corporation arising from its pre-eminence in the business and the irresistible strength of its alliances, come together from time to time, find out the views of the Corporation in respect of prices and output, and all that hitherto was affected by pools and formal agreements, reach a common understanding and purpose, and proceed to carry them out. It is not here alleged that merely assembling and exchanging information and declaration of purpose amounts to an agreement or combination in restraint of trade. These meetings and their results have gone further. What they actually accomplished shows the great and dangerous power achieved by the Corporation through unlawful combination exercised over the trade and commerce of the country. The concerted action taken has prevented fluctuations in prices and competition.

The petition further alleges that fully 90 per cent of the iron and steel trade of the United States was represented at the meetings referred to; that these meetings brought about the maintenance of prices, and accomplished more than did the old pools and agreements which were frequently broken.

The answer admits that representatives of a large proportion of the steel manufacturing interests in the United States have met together from time to time since November 20, 1907, but denies that such meetings were brought about by the influences, or that they were held for the purposes, or that they accomplished the results,

I From the Statement of the Case between the United States of America and the United States Steel Corporation and Others in the District Court of the United States for the District of New Jersey, pp. 311–13.