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corroboration of this idea, attention is called to the fact that the Commission may be asked to act in conjunction with a court of equity, and as a master in chancery frame an appropriate form of decree in actions brought by the Attorney-General under the Anti

trust laws (Trade Commission Act, Sec. 7).

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CHAPTER IV.

PROHIBITIONS UNDER THE CLAYTON LAW.

1. Unfair price discrimination.

2. Conditional or "tying" contracts.

3. Ownership by one Corporation in the stock of another. 4. Interlocking Directorates.

a. Corporations generally.

b. Provisions as to banks.

c. Provisions as to common carriers.

1. UNFAIR PRICE DISCRIMINATION.

Terms Originally More Severe.-This provision (section 2) was originally much more drastic, and as it came from the House, its terms made all price discrimination unlawful. The conditions which mitigate the statutes' severity were added by the Senate and in its present form no harm can be done to any person or corporation with honest intention to deal fairly. Indeed, this provision is more lenient than its prototype, Laws of New Jersey, Chap. 15, Session 1913, where no allowance is made for the "cost of selling," or for "discrimination in price in the same or different communities made in good faith to meet competition," nor are the merchants to select their customers. There is no mystery about the nature, extent or reality of the "unfair methods" which is aimed at by Congress in this enactment. The record of the testimony and proceedings leading up to the decrees of dissolution of the Standard Oil Company and The American Tobacco Company show clearly how the practice of the trusts when so disposed, have worn down and crushed their competitors. Corporations, covertly controlled, were specially organized to cut prices in one community, while the price was maintained or even

1 In the initial Clayton Bill decision, Great Atlantic & Pacific Tea Co. v. Cream of Wheat Co., 224 Fed. 566, (So. Dist. of N. Y., July 20, 1915), it was held that the basic right to select customers recognized and incorporated in the provisions of Section 2 permits the defendant to refuse to sell to plaintiff.

In arriving at the general result adverse to plaintiff, the District Court relies upon the reasoning and citations contained in Fisher Flouring Mills Co. v. Swanson, 76 Wash. 649. Decision affirmed, November 9, 1915. This Clayton Law decision is also referred to herein at pages 193, 194.

raised elsewhere; retailers were penalized if competitors' goods were displayed; and numerous other devices resorted to in order to monopolize the business. Perhaps the extreme is shown in the record of the methods alleged to have been employed by a certain manufacturing concern, where it is charged that agents were employed to disarrange or mutilate the machines of competing concerns, in order to enhance the superiority claimed for those manufactured by the first-named concern.

Statute Ample for Purpose.-The latitude in trade permitted by the statute should be ample for those concerns intending to deal fairly; and as to the others, the severity of the law will be well employed in restraining or extinguishing their activities. The statute is well drawn to accomplish its purpose. No legitimate enterprise can suffer by compliance with its terms. The law has served due notice upon the predatory class in business, and it becomes the duty of the Federal Trade Commission to enforce the statutory requirements. Section II vests in the Interstate Commerce Commission or the Federal Reserve Board the right to enforce Sections 2, 3, 7, and 8 where applicable respectively to common carriers or banking institutions. Section 16 further restricts to the United States government the right to apply for injunctive relief against railroads, in certain cases. Since neither banks nor railroads are dealers in commodities, it is probable Congress did not intend to include banks or transportation concerns within the scope of Section 2.2

2. CONDITIONAL OR “TYING” CONTRACTS.

A Common Form of Oppression. This practice has been common on the part of large concerns which have sought to introduce with their selling contracts a clause so "tying" up their customer that dealing with competitors was rendered almost or quite impossible. By Section 3 of the Clayton Bill, such practice is made unlawful, and the insertion of a "tying" condition is prohibited in interstate commerce, whether the articles are patented or unpatented, and whether delivery is made by sale or lease. The lawfulness is made to turn upon whether the effect of the transaction is substantially to lessen competition, or whether it tends to create a monopoly. Thus the question of fact will be the turning point in every instance, and contracts regulating

2 See Butler & Lynde's Federal Trade Commission, pages 9 and 10.

dealings having a legitimate and fair purpose are not likely to be disturbed. In its practical effect this clause will probably be construed to permit the patent owner to require specified material to be used in connection with his patent machine or process, as was recently permitted under then existing laws in Henry v. H. B. Dick Co., 224 U. S. 1; but it is equally probable he will not be permitted to compel the licensee to employ such material generally, regardless of its use in association with the patented invention.

The former right would seem to be in accordance with the patentee's right to exercise or transfer the privilege of "exclusive use" which letters patent confer; while the extension of that right by compelling the licensee to agree to employ such material generally would appear "to substantially lessen competition or tend to create a monopoly in any line of commerce,"-to constitute such a "tying" contract, in brief, as Section 3 was intended to prohibit in connection with patented or unpatented articles.

It may be that the Commission and the courts will construe the statute so broadly that the practice of selling patented devices under "tying" contracts will be authorized where the general volume of the material "tied" to the use of the patented machinery is not so controlled as to create a universal restraint and monopoly in that general line of trade, for every reasonable latitude should be afforded the inventor to reap the full benefits of his discovery; but the apparent intention of the legislation is to restrict the “exclusive right" which a patent confers, to those things directly associated with the protected invention itself.

Object is Plain.-Comment seems uncalled for as the object of the statute is plain and speaks for itself. By the provisions of Section II, exclusive jurisdiction is conferred upon the Interstate Commerce Commission and the Federal Reserve Board to enforce the prohibitions contained in Sections 2, 3, 7 and 8, where applicable to common carriers or banking institutions, respectively. Probably the instances where "tying" sales or leases will occur in connection with the two last-named classes of corporations will be extremely few; but the intent of Congress was clearly to interdict them, wherever and whenever their presence, joined to a monopolistic intent, is made to appear.

3. OWNERShip of onE CORPORATION OF STOCK IN ANOTHER, WHERE THE EFFECT MAY BE TO RESTRAIN COMMERCE OR MAY TEND TO CREATE A MONOPOLY.

Provision Aimed at Abuse of Stock Control.-This prohibition (Sec. 7) is not directed against natural persons but relates to corporations only. It covers competing corporations actually engaged in commerce and also holding companies, whose sole function is to own and operate other incorporated enterprises.

Under Section II the Interstate Commerce Commission or the Federal Reserve Board are specifically given power to enforce the provision of this section (7) whenever it calls for determination of the affairs of a common carrier or bank. Saving clauses are contained in the text which permits corporations to own stocks for investment, to form subsidiary corporations for non-monopolistic purposes, and which exempt stocks theretofore legally acquired. Common carriers are also permitted to own stocks in branch line companies.

Control by Holding Company Illegalized.-It will be seen that the scope and purpose of the statute is to prohibit an abuse which by degrees crept into the laws of certain jurisdictions, commonly known as "the incorporating States," and resulted in an abuse of the power to grant chartered rights. A competition in the enactment of corporation laws permitting companies to "do anything anywhere”—a maximum of powers with a minimum of responsibility and supervision-brought about an impossible situation.

Under the theory of the comity of States, these powers were accorded a measure of recognition even in jurisdictions where locally incorporated companies were denied similar privileges, and in the end confusion was sure to ensue. The corporation tax became a prize for the least conscientious in this competition in lax lawmaking, and while the fees of the Secretary of State became an Aladdin's lamp of income in numbers of instances, in one jurisdiction the salaries of the state officers and the judiciary were reputed to be met from that item alone.

Where the revenues from the trusts and large incorporated interests were so important in making up the annual budget, small concerns could not hope for equal consideration; and thus the scales of justice became suspected of being in a condition of unstable equilibrium. An aristocracy of wealth arose, which was an

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