Interstate Commerce Commission, the Federal Reserve Board, and the Federal Trade Commission, according to their respective jurisdictions, these powers being substantially the same as those of the Federal Trade Commission with respect to unfair methods of competition. (See p. 130.) (2) The declaration is made that labor is not a commodity nor an article of commerce, and further that the antitrust acts shall not be construed to forbid the existence of certain kinds of labor and agricultural organizations, nor to forbid their members from lawfully carrying out their legitimate objects, nor shall such organizations be construed to be illegal under the antitrust laws. This law contains various other important provisions, but they are of less interest in connection with the development of the Antitrust Law. The provisions of the Clayton Act first referred to above were intended, apparently, to prevent certain practices which were regarded as lessening competition or tending to monopoly, but which, it was feared, would not always in themselves be sufficient to bring the person who practiced them within the scope of the Sherman Antitrust Act. While some effects have already manifested themselves with respect to the forms of business organization, this legislation is of too recent a date to make it possible to form any accurate estimate of its broader consequences. CHAPTER II. COMMON-LAW DECISIONS BY COURTS IN THE UNITED STATES IN Section 1. Introduction. The decision of the United States Supreme Court in the Standard Oil case made it evident that the words "restraint of trade" in the Sherman Act should be construed as declaratory of the common law so far as the meaning of that term was concerned. (See pp. 86-87.) This view had been taken by the dissenting.members of the Court in the Trans-Missouri case. (See p. 85.) Even in the latter case the majority of the court had expressly declared that there were certain contracts which might not be included in the letter or spirit of the statute. A proper understanding of this term as used in the Sherman Act, therefore, requires a knowledge of the common-law decisions. This knowledge is important for the reason that the rules set forth in these decisions form the basis of jurisprudence in every State where no antitrust statutes have been enacted; where such statutes have been held unconstitutional, ineffective, or inapplicable; where they have been repealed; and where, as in Massachusetts (see p. 204), the statutes are expressly declaratory of the common law. (See Chap. IV.) The importance of the common law decisions becomes even more evident when it is perceived to what extent the courts, in deciding cases under both State and Federal statutes, have cited such decisions. No method of presenting the common-law decisions is satisfactory, however, which does not involve a careful examination of a considerable number of representative cases. It is obvious that the principles upon which some agreements have been held valid and others invalid will be much better understood if, in connection with the decisions, the essential facts in particular cases are examined, together with the reasoning contained in the opinion of the court. It can not be expected, however, that a complete agreement will be found in all the cases, but it is probable that there is as much consistency in the decisions on this subject as in those relating to other subjects. In carrying out the method of presentation indicated, it has been found that the cases cover so wide a variety of circumstances that it is difficult to classify them satisfactorily, but to make the presentation somewhat clearer for present purposes, the following principal groups will be considered, namely: (1) Agreements connected with the sale of a business. (2) Agreements among competitors to restrict competition. (3) Agreements among competitors to consolidate under common ownership or control. In these three groups of cases it will be observed that the first group includes agreements by which the vendor of a business agrees not to reengage in the business as a competitor of the purchaser. In the second group the agreement is one to regulate the conditions of competition between those who are trade rivals and who continue as such, subject to the restrictions of the agreement. The third group includes agreements whereby the ownership or control of competing businesses is combined in the same hands. The present report, however, is more intimately concerned in the cases of the second and third groups, namely, those which are more likely to be of a monopolistic character or to have a monopolistic tendency. Agreements between the buyer and seller of a business included in the first group may also be monopolistic in character or tendency when accompanied by circumstances from which it appears that the contract has been entered into as a device to lessen competition, enhance prices, or secure or build up control of the market, as where a buyer acquires the business of several competing vendors. It is clear that in themselves the agreements of the first group do not necessarily tend to give the buyer control of the market. This class of cases must be briefly considered here, however, in order to understand the present meaning of the term "restraint of trade" in the light of its development, since it was to this class of cases that the term was originally applied and to which it was largely confined in the early decisions. The use of unfair competitive methods may afford substantial evidence of an intention unduly to restrain trade or competition, to secure control of the market, or to create a monopoly. It appears, however, in the common-law cases, that when such methods exist, the control of the general market is not necessarily involved. Such cases are therefore taken up elsewhere in this report. (See Chap. VII.) An important feature of cases involving unfair methods of competition is the effect of the practice upon individuals engaged in competition with the party complained of. In this class of cases considerations of the greatest public concern may be involved (especially in the result of the continued use of unfair methods), but in particular instances the effect upon the general public is usually more limited or less direct than in the cases discussed in this chapter. Under the common law, agreements in restraint of trade, which are regarded as against public policy, are held to be void and unenforceable. The court will not aid any party whose rights are derived from such an agreement. In this sense these agreements are unlawful or illegal. By statute a criminal liability has been imposed in certain cases, especially those involving an element of conspiracy. (See pp. 2, 3.) In former times attempts to control the market in respect to victuals and other necessaries were punished as criminal offenses,1 apparently without regard to whether a conspiracy existed or not. Section 2. Agreements connected with the sale of a business. Centuries ago English courts laid down the rule that contracts in restraint of trade could not be enforced. The courts were opposed to upholding any restraint, however limited. Most of the cases which came before the courts in that period involved agreements whereby the vendor of a business agreed not to reengage in the same line of trade. The courts took the view that no one should be allowed to bind himself not to carry on the trade to which he was accustomed or to limit his right to carry it on in his own way. It was believed that such a rule was in the interest of trade. 2 This view prevailed until early in the eighteenth century when the case of Mitchell v. Reynolds was decided. In that case, after a thorough examination of the earlier decisions, the court held valid the particular agreement that was involved in the case before it. In reaching this result the court said in part: We are of opinion, that a special consideration being set forth in the condition, which shows it was reasonable for the parties to enter into it, the same is good; and that the true distinction of this case is not between promises and bonds, but between contracts with and without consideration; and that whereever a sufficient consideration appears to make it a proper and a useful contract, and such as cannot be set aside without injury to a fair contractor, it ought to be maintained; but with this constant diversity, viz., where the restraint is general, not to exercise a trade throughout the kingdom, and where it is limited to a particular place; for the former of these must be void, being of no benefit to either party, and only oppressive, as shall be shown by-and-by. * * * In all restraints of trade, where nothing more appears, the law presumes them bad; but if the circumstances are set forth, that presumption is excluded, and the Court is to judge of those circumstances and determine accordingly; and if upon them it appears to be a just and honest contract, it ought to be maintained. This decision, that some restraints could be enforced, established an important modification to the earlier rule. The decision recognized the rule as to all general restraints, because it seems to have 164 L. R. A., 689n. Compare, however, Coke's Institutes, chap. 89; Hawkins's Pleas of the Crown, chap. 80, London ed., 1739; and Rex v. Waddington (1801), 1 East, 143. 21 P. Wms., 181 (1711). been thought that there could be no question that all such restraints were bad. In cases where the restraint was limited to a particular place, however, it was held that the court should determine whether it was just and honest, having regard to the circumstances, and, if so, it should be enforced. This decision gave rise to some confusion and uncertainty in the use of the term "restraint of trade," which has persisted until the present time. By some the term has been used to include all restraints where any limitation in fact is involved without regard to whether the contract was just and honest or not, while by others it has been used to include only those restraints which are unenforceable. Failure to observe this distinction has caused misapprehension in respect to the legal significance of the term This confusion has been increased by some lack of uniformity in the decisions themselves. Some courts have apparently felt constrained to follow precedents established under economic conditions that prevailed in earlier years, rather than to regard changes in such conditions as among the "circumstances" referred to in the rule laid down in Mitchell v. Reynolds, as to what should be taken into consideration in determining whether the contract is "just and honest." On the other hand, some courts, especially in England, in following the spirit of this rule, have gone farther in its application and even held some general restraints enforceable, as in the case of the sale of trade secrets and trade of a special character, which, although of wide extent, is confined to a limited number of customers.1 The dictum in Mitchell v. Reynolds, that a general restraint not to exercise a trade throughout the kingdom was void, has been attributed to the probability that at the time that case was decided it seemed inconceivable that an agreement to refrain from establishing a business of the same kind anywhere in the kingdom should be necessary to the protection of the good will of any business then existing. In following this dictum it came to be held in England that any restraint whose limits were coterminous with the kingdom should be regarded as void, and the courts continued to apply the limits thus arbitrarily fixed, even in cases where, under more modern conditions, the circumstances might have been held to justify a more liberal interpretation of the rule. The dictum has been followed in a number of American cases which hold that an agreement involving a restraint covering, or substantially covering, an entire State is void as a general restraint. This was the view taken by the court in Law 3 1 Jolly, Contracts in Restraint of Trade, p. 19 (3d ed., London, 1914). 2 See Anchor Electric Co. v. Hawkes, 171 Mass., 101 (1898) at p. 105. Among these cases may be mentioned Lawrence et al. v. Kidder, 10 Barbour (N. Y.), 641 (1851); Taylor v. Blanchard, 13 Allen (95 Mass.), 370 (1866); and Western Woodenware Association v. Starkey et al., 84 Mich., 76 (1890). In connection with the latter case, see Beal v. Chase et al., 31 Mich., 490 (1875) on p. 33 of this report. |