terstate commerce even where such restraint could be said to be "reasonable" or "due." In short, the court now, by judicial legislation, in effect amends an act of Congress relating to a subject over which that department of the government has exclusively cognizance. I beg to say that, in my judgment, the majority, in the former cases, were guided by the "rule of reason"; for it may be assumed that they knew quite as well as others what the rules of reason require when a court seeks to ascertain the will of Congress as expressed in a statute. It is obvious from the opinions in the former cases, that the majority did not grope about in darkness, but in discharging the solemn duty put on them they stood out in the full glare of the "light of reason," and felt and said, time and again, that the court could not, consistently with the Constitution, and would not, usurp the functions of Congress by indulging in judicial legislation. They said in express words, in the former cases, in response to the earnest contentions of counsel, that to insert by construction the word "unreasonable" or "undue" in the act of Congress would be judicial legislation. Let me say, also, that as we all agree that the combination in question was illegal under any construction of the anti-trust act, there was not the slightest necessity to enter upon an extended argument to show that the act of Congress was to be read as if it contained the word "unreasonable" or "undue." All that is said in the court's opinion in support of that view is, I say with respect, obiter dicta, pure and simple.

For the reasons stated, I concur in part with the court's opinion and dissent in part.'

1 A number of the results following the dissolution are detailed herein at pp. 313 ff., supra. W. S. Stevens, Industrial Combinations and Trusts, chapter XIV, reprints both the Standard Oil and Tobacco decrees of dissolution. reprints protests of independent concerns as to its efficacy.

In his chapter XV he

2

XVIII

THE RULE OF REASON APPLIED CONCRETELY,

1911-1915

Two groups of recent Anti-Trust law cases are carried over as a legacy from the preceding chapter because in their final adjudication, the logical consequences of interpretation according to the rule of reason are peculiarly apparent. These are, respectively, those cases which have to do with misuse of the patent laws, and those which embody unfair, that is to say unsportsmanlike, practices. Instances of each abound in the period preceding 1911; but they mark no progress in the unfolding of the law. It is only after the clear cold light of reason has once been turned upon them in the Standard Oil decision, that they become significantly phosphorescent.

Foremost examples of prevented misuse of the patent laws are found in the conviction of John H. Parks in 1908, who was fined $50,000 for organizing a patent pool in the paper trade; and in the condemnation, with penalties of $128,700, three years later of some nine patent pools in the electrical manufacturing business. An umbrella frame combination in 1907, the bicycle coaster brake prosecutions in 1912-1913, and the clothes wringer agreement the following year, alike resemble in principle the Bathtub case of 1913 which is reported first in this chapter. Heavy fines were imposed in each instance and the pool was compelled to disband. Akin to this class of cases, but rather more technical in interpretation, in the light of public interest is the first United Shoe Machinery Company decision of 1914. The lower Federal court found sufficient justification for the monopoly in the patent laws even to overlook what otherwise and elsewhere would have been condemned as unfair practice in making exclusive agreements contrary to the public interest. On the other hand, in the electric lamp pool between the General Electric and Westinghouse companies in 1911, the courts found such elements of public menace as to cause it to be unqualifiedly condemned. The Kodak and motion picture company cases, now pending,2 still further illustrate the confusing character of combinations, supported on the one side by the public

1 Cf. Stevens in the Quarterly Journal of Economics, Vol. XXVI, 1912, pp. 594-602; as also Industrial Combinations and Trusts, pp. 248 and 316.

2 These, just decided, are discussed in the Introduction to this volume.

necessity of protecting inventive ability, while yet disapproved on the other because of oppressive trade practices which tend to stifle opportunity for others.

Space does not permit of a description of all of the unfair practices which have been disclosed in these anti-monopoly cases.1 But three of the opinions reprinted in this chapter, namely the Bathtub, the Keystone Watch and the Cash Register cases, serve to show why the legislation of 1914 amending the Sherman Act came to be imperatively demanded by an outraged public opinion. The fundamental point at issue in this group of offences is not merely the immediately evil and oppressive effect of such unfair tactics as espionage, intimidation, local price cutting and the like; but whether in entire absence of such practices, the inherent economies of monopolistic or even sometimes only of very large scale production, are sufficient to perpetuate combination in the face of alert and active competition. The success of such concerns as the International Harvester Company and the U. S. Steel Corporation prove that "big" business is not necessarily unfair business. But the puzzling question then remains as to whether size and power, per se, even when avowedly handled fairly, still contain within themselves such seeds of danger, as to warrant judicial condemnation. This is the problem which is discussed in the International Harvester decision in this chapter 2 and in the Steel Corporation opinion in Chapter V.

The Keystone Watch case is illuminating, also, along with the St. Louis Terminal Association decision,3 as an indication of the wise application of the law since the Standard Oil opinion, in making a distinction between the good and the bad features of a business. Before 1911 a combination must necessarily have been either approved in entirety as to its organization and conduct and allowed to go unmolested, or else have been unqualifiedly condemned and summarily dissolved. But in these instances, it appears that a public policy is possible which shall correct the unwholesome features, and yet leave open the door of enterprise to realize all of the rewards of ability, except those which flow from an arbitrary and unfair exercise of power and advantage. To effect such a distinction between good and evil is, as will appear in the next chapter, the task laid upon the Federal Trade Commission in 1914, acting in coöperation with the judiciary. Not for years has the outlook for industrial peace in the domain of large enterprises looked more hopeful, in consequence of decisions of this sort. - - ED.

1 Stevens categorically assembles them in Political Science Quarterly, Vol. XXIX, 1914, pp. 282-306 and 460–490; and Industrial Combinations and Trusts, chapter XII. 2 P. 634, infra. 3 P. 495, supra.

ware.

THE BATHTUB CASE1

A PATENT POOL

It will be called the

The United States brings this suit. government. Its petition is filed under the fourth section of the Sherman Anti-Trust Act. It charges that the defendants have violated the first and second sections of that act. It says that they have conspired to restrain interstate trade in sanitary enameled iron ware, and have attempted to monopolize such trade therein. All the defendants are concerned in making and selling that It is made of cast iron. It is coated with enamel. It has the appearance of being porcelain lined. Bathtubs, lavatories, closet bowls, and tanks, sinks, and urinals are among the more important articles made of it. It will be referred to as the ware. There are 50 defendants. Sixteen are corporations. They will be called the corporate defendants. Thirty-four are individuals. They are styled individual defendants. One of them is Edwin L. Wayman. With him each of the corporate defendants made an agreement. These agreements the government says restrain trade in the ware, and attempt to monopolize it. The other 33 individual defendants are officers of the corporate defendants. The government charges that they each were among the persons who knowingly caused the corporate defendants to do that of which it complains.

OPINION OF THE COURT

These 16 agreements were, with exceptions to be mentioned, identical in their language. At least 15 of the 16 corporate defendants had directly or indirectly taken part in drafting the common form. They were executed by nearly all the corporate defendants on the same day and at the same place. No defendant entered into the agreement without knowing that at least 13 of the other corporate defendants had executed it, or intended so to do. Without this knowledge no one of them would have become a party to it. Each of these agreements is in the form

1 U. S. v. Standard Sanitary Man'f'g Co., Circuit Court, 191 Fed. Rep. 172; 226 U. S. 220; decided October 13, 1911. Omissions are not always indicated.

of a license granted by Wayman accepted by a corporate defendant. The patents under which the licenses purported to be granted were first put into Wayman's name two days before most of the agreements were executed. The terms of the agreements had been definitely settled at least two weeks. earlier. There were three patents. They all were for automatic dredgers. A dredger is a tool used in the enameling step of making the ware. The licenses were granted for a period of two years, beginning June 1, 1910. Each licensee promised on the 5th day of each month to pay $5 a day for each furnace used by it for the making of the ware during the preceding month. Wayman undertook that he would three months later pay back $4 out of every $5. This undertaking was conditioned upon the licensee having in the meantime done all, he had agreed to do. There are about 25 working days a month. Wayman on the 5th of every month, therefore, received $125 for each furnace continuously operated during the. preceding month by any one of his licensees. One hundred dollars of this he was eventually to pay back. This repayment was not to be made until three months had gone by. After the first four months, he would always have in his hands $300 of his licensees' money for every furnace of theirs in steady use. As it actually turned out, he usually held between $40,000 and $50,000 belonging to them. This money was in the nature of cash bail. Each corporate defendant in this manner gave security that he would keep his bargain, or be good, as one of the licensees expressed it. Each corporate defendant promised to do three things: (1) It would not sell any "seconds" or "Bs" of any of the ware except bathtubs. It apparently reserved the right to market what the trade calls "nonguaranteed" bathtubs. (2) It would not sell any ware to any jobber who did not sign the jobbers' resale agreement to be presently described. (3) It would not sell anybody any ware at a lower price or upon more attractive terms than those named in the agreement or in a schedule attached to it. This schedule named standard prices for each article of the ware and for each size, shape, and grade of that article. All the corporate defendants promised that they would not sell some articles below