CHAPTER X

THE CONSTITUTIONALITY AND VALIDITY OF THE SHERMAN ACT

8145. Suppose the Sherman Act prohibits every contract, combination and conspiracy which is (however slightly) in restraint of trade according to the literal significance of those words, in accordance with the dictum of the court in the TransMissouri Freight Association Case.1 That would mean that some acts would be forbidden which were in restraint of trade but which at common law were legal and proper. If, however, the common law determined what acts in restraint of trade were legal or illegal on the balance of all the considerations affecting the parties and the public, the supposed interpretation of the Sherman Act would cause it to prohibit acts which on a balance of all the proper considerations were not contrary to the interests of the parties or the public. Such a construction would mean that the act would be a blow (incalculable in extent) to the freedom to do business. Would it then be "due process of law" under the Fifth Amendment? Might it not be quite as violent an onslaught upon the fundamentals of the social structure as the acts held void in the Lochner Case,2 the Adair 3 and Coppage 4 cases and the Upper Berth Case 5? This is now a moot question because such a construction of the Sherman Act has been finally repudiated. It is worth noting, however, that the Supreme Court of the United States undertook to sustain the constitutionality of the Sherman Act even when it was inclined to adopt the construction assumed."

1-Ante § 138.

2-Lochner v. New York, 198 U. S. 45 (1905).

3-Adair v. United States, 208 U. S. 161 (1908).

4-Coppage v. State of Kansas, 236 U. S. 1 (1915).

5-Chicago, Milwaukee & St. P. R. R. v. Wisconsin, 238 U. S. 491 (1915). See Due Process, the Inarticulate Major Premise and the Adamson Act, by A. M. Kales, 26 Yale Law Journal 519.

6-United States v. Joint Traffic

§ 146. Now suppose (as seems settled) the act prohibits only contracts, combinations, and conspiracies which are illegal because in restraint of trade-the illegality being determined by some standard outside the act-i. e., "the standard of reason which was applied at common law." Is the act valid? Certainly the act would not violate the Fifth Amendment. It would not fail to be "due process of law"; for, ex hypothesi, what is declared illegal by the act, should, on a balance of all the interests, be prohibited. But why is not the act void for uncertainty, or because it is a delegation of legislative powers to the court to define crime and acts which are prohibited by law?

8

§ 147. If the statute is not void for uncertainty it must be because there is a sufficient standard to make the acts prohibited certain. In International Harvester Co. v. Kentucky & the legislation in question failed for uncertainty because there was no standard at all. The standard of real value of the article sold by the combination as compared with the price asked was purely illusory. In the case of the Sherman Act, however, there is a standard in the fiat of the court itself applying the rule of reason as at common law. This is a real standard because it makes every act prohibited just as definite and certain as was every common law crime, or act held invalid because it was in restraint of trade, before the court had finally adjudicated the act to be a crime or to be illegal. Courts which are admittedly tied to the common law system could not say that a statute which, in defining crime or illegal acts, provided for the same degree of uncertainty-no more and no less-and the same basis of uncertainty which existed at common law before any authoritative determination had been made, was too uncertain to be valid.9 Association, 171 U. S. 505 (1898) [765].

7-Standard Oil Company V. United States, 221 U. S. 1 (1910) [780]: "But the ultimate foundation of all these arguments [against the constitutionality of the Sherman Act] is the assumption that reason may not be resorted to in interpreting and applying the statute, and therefore, that the statute unreasonably restricts the right to

contract, and unreasonably operates upon the right to acquire and hold property. As the premise is demonstrated to be unsound by the construction we have given the statute, of course the propositions which rest upon that premise need not be further noticed."

8-234 U. S. 216 (1914). 9-Nash v. United States, 229 U. S. 373 (1913) [1152].

§148. But if the source of uncertainty is the "standard of reason" applied by the court, why is not the act void because it is a delegation of power to define crime and illegal acts? Suppose, for instance, the act had in terms empowered the supreme court to determine what contracts, combinations, and conspiracies in restraint of trade were illegal; and that in so doing it was to exercise its reason and balance the interests of the parties and the public as the judges in common law courts did upon making a decision before any authoritative adjudication had occurred upon the subject dealt with. Would such an act be a delegation of legislative power to define crime or illegal acts? Clearly not. The legislation enacted would merely cast upon the court its centuries-old common law judicial function. The act would do no more than define a federal jurisdiction over interstate and foreign commerce into which it would conduct the court there to operate as common law courts regularly operate in reaching decisions. It would do no more than is effected where, by the settlement of a colony or a territory from a common law jurisdiction, the courts of the new jurisdiction begin to decide what is common law and to apply it on the ground that the settlers brought the common law with them.10 The Supreme Court of the United States, when exercising its original jurisdiction in disputes between states, at once adopted the standard of reason which was applied at common law, and called the result interstate common law.11 Surely Congress can give to the federal courts the power which courts have exercised without any act of any legislature. The federal courts in certain classes of cases where they obtained jurisdiction on the ground of diverse citizenship have, under the doctrine of Swift v. Tyson,12 undertaken to apply what they conceive is the common law rule. Their common law rule not infrequently differs from the common law rule of the state where the action arose and where the case was

10-Railroad v. Keary, 3 Oh. St. 201, 205 (1854); Bloom v. Richards, 2 Oh. St. 387, 390 (1853). See also State v. Cawood, 2 Stew. (Ala.) 360, 362 (1830). In Lyle v. Richards, 9 Serg. & Rawle 322, 330 (1832) the court states that our

ancestors "brought with them the common law in general, although many of its principles lay dormant, until awakened by occasion.''

11-Kansas v. Colorado, 206 U. S. 46 (1907).

12-16 Pet. 1 (1842).

tried. No acts of Congress conferred this power.13 By what rational process the federal courts secured it is still a mystery.14 If the federal courts can, in the exercise of their jurisdiction founded upon diverse citizenship, declare what is the common law, surely they can do the same thing in the jurisdiction conferred upon them by the Sherman Act with respect to restraints of trade in interstate and foreign commerce. Then we have the state statutes which declare generally that the common law shall be the rule of decision. We find cases attempting to describe what this means. 15 But no one ever attempted to call such acts unconstitutional because they were a delegation of legislative power to the courts to define crime, or the rights or liabilities of the parties. The parallel between such acts and the Sherman Act is complete. Both alike conduct the courts into a given jurisdiction and then authorize them to act within that jurisdiction the way courts administering the common law have been accustomed always to act. The only difference is that the general statute adopting the common law is comprehensive as to subjects and territorial jurisdiction. The Sherman Act picks out a special jurisdiction-"interstate and foreign commerce❞— and then as to that gives the federal courts authority to act (as common law courts administering common law have been accustomed to act) only with reference to contracts, combinations, and conspiracies in restraint of trade, and monopolies, and attempts to monopolize.

13-Indeed, it seems to have been established contrary to the terms of the Judiciary Act, U. S. Stat. 1789, Chap. 20, paragraph 34, which provided that "the laws of the several states, except where the Constitution, pleadings, or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decision in trials at common law in the courts of the United States in cases where they apply"; and under which it has

been held that the rules of law determined by the decisions of the state as to the law of real property, for instance, shall be applied in the federal courts.

14-The Nature and Sources of the Law, John C. Gray, §§ 535 et seq.

15-Williams v. Miles, 68 Neb. 463 (1903); Lux v. Haggin, 69 Cal. 255 (1886); Sayward v. Carlson, 1 Wash. 29 (1890).

CHAPTER XI

WHO MAY INVOKE THE APPLICATION OF THE SHERMAN ACT

§ 149. Of course the Attorney-General of the United States may invoke the application of the act by a bill in equity or indictment in the federal courts. The individual may also do so in a suit for triple damages under Section 7. But the stockholder of a corporation that could sue under Section 7 cannot, in his own name, sue for triple damages.1 Nor can he sue in equity for triple damages even when the officers of the corporation refuse to do so and the corporation itself is made a party defendant.2 Such an action would deprive the defendant who had wronged the corporation of trial by jury in a suit for a penalty. His right should not be affected by the refusal of the officers of the corporation to accommodate the stockholder. The stockholder might attempt to secure a decree directing the corporation to sue, and if it failed to do so, or could not properly be trusted to do so, ordering the corporation to permit the plaintiff to sue at law in its name and on its behalf. Perhaps, in the suit by the stockholder against the corporation and the defendant alleged to have committed the damage, the court, after a preliminary investigation of the merits of the plaintiff's case and the existence of the refusal of the corporate officers to sue and want of justification for such refusal, might properly send the issue of the violation of the Sherman Act and the damages to a court of law for trial by jury.

§ 150. How far may the individual apart from the suit for triple damages invoke the operation of the court under the Sherman Act? Of course, he cannot take the place of the AttorneyGeneral and institute such a suit as the government is authorized

1-Ames v. American Tel. & Tel. Co., 166 Fed. 820 (1909) [1221].

2-Fleitmann v. Welsbach Co., 240 U. S. 27 (1916).