such contracts by one engaged in Interstate Commerce illegal. 36

§ 1648. Agreement among competitors to limit competition or maintain prices.

Numerous agreements have been made, especially prior to 1900, by competing firms or corporations having for their object fixing prices, pooling profits, limiting output, controlling supply, or dividing territory, for the purpose either of limiting competition for business or of precluding the lowering of prices by means of competition. Such agreements have been almost universally held invalid because of their tendency to injure the public. 37 Under the English law it is not clear that a contract

.

not unreasonable in view of the interests of the parties and intended for their own advantage, not for the injury of others, is ever invalid because in restraint of trade. 38 Certainly the mere fact that the purpose of an agreement is to maintain prices or to suppress competition does not invalidate it.39 And

agreements for the division of business, 40 or of territory with a

view of lessening competition, prices, 42 have there been upheld.

or for the maintenance of In the United States, how

ever, such agreements are illegal whether they are proved in fact to be detrimental to the public or not. It is enough to render the agreement invalid if it is not ancillary to some permitted transaction and if it "in its necessary or contemplated operation upon the actions of the parties to it, tends to restrain their natural rivalry and competition." 43 The invalidity of such attempts to obtain by contract the advantages of monopoly having been clearly established, an attempt was next made to make consolidations first in the form of a trust,44 and later by creating a corporation which should control or purchase the business of various competitors. This final method whether it might have been effective at common law or not,45 falls

Such a state of things may, if it is not controlled, drive manufacturers out of business, or lower wages, and so cause unemployment and labour disturbance. It must always be a question of circumstances whether a combination of manufacturers in a particular trade is an evil from a public point of view. The same thing is true of a supposed monopoly. In the present case there was no attempt to establish a real monopoly, for there might have been great competition from abroad or from other parts of these islands than the part which was the field of the agree ment."

In Evans v. Heathcote, [1917] 2 K. B. 336, [1918] 1 K. B. 418, an agreement between manufacturers of cased tubes which provided for the restriction of a total output and a distribution of the permissible output among several members of an association was held invalid, but this was not because of injury to the public from monopoly but because the agreement was unreasonable with reference to the parties thereto since no means were provided for withdrawing from, the agreement and the limitation imposed on the

right of any member to enter into contracts were extremely drastic.

40 Collins v. Locke, L. R. 4, H. L. 674, an agreement between stevedores in Melbourne that they should be entitled to have the stevedoring of vessels arriving in future in the port in a certain order was upheld, and damages given for its breach.

41 Wickens v. Evans, 3 Y. & J. 318. 42 Shrewsbury, etc., Ry. Co. v. London, etc., Ry. Co., 17 Q. B. 652; Jones v. North, L. R. 19 Eq. 426; Cade v. Daly, [1910] 1 Ir. Rep. 306. Cf. Urmston v. Whitelegg Bros., 63 L. T. 455.

43 Keene Syndicate v. Wichita Gas, etc., Co., 69 Kans. 284, 288, 76 Pac. 834, 67 L. R. A. 61, 105 Am. St. Rep. 164, citing: Atcheson v. Mallon, 43 N. Y. 147, 3 Am. Rep. 678. See also cases supra, n. 32.

44 See People v. North River Sugar Refining Co., 121 N. Y. 582, 24 N. E. 834, 9 L. R. A. 33, 18 Am. St. Rep. 843.

45 In Richardson v. Buhl, 77 Mich. 632, 43 N. W. 1102, 6 L. R. A. 457, 8 corporation formed for monopoly was held illegal. See also Distilling, etc., Co. v. People, 156 Ill. 448, 41 N. E. 188,

within the ban of the Sherman law and other enactments if the purpose and effect of the combination is to produce a condition approaching monopoly.46 It is clear that wherever such a combination is illegal, a contract to form it is equally illegal.

§ 1649. Limitations on resale prices.

An attempt has frequently been made by manufacturers to maintain the price of the manufactured article by making a series of contracts with jobbers, to whom the manufactured goods are sold, that they shall not be resold at less than a stated price. Sometimes, an attempt is made to bind each purchaser of the goods by notice attached thereto. Sometimes, instead of exacting a contractual agreement, a condition qualifying the right of the purchaser is attached to the transfer of title. Though a series of contracts to this sort is lawful in England, and in some of the United States, 48 the United States Supreme Court has in a series of decisions held such an attempt to maintain a resale price invalid at common law, and when affecting interstate commerce, in violation of the Sherman Act,

47 Am. St. Rep. 200; Harding v. American Glucose Co., 182 Ill. 551, 55 N. E. 577, 64 L. R. A. 738, 74 Am. St. Rep. 189.

46 In United States v. United Shoe Machinery Co., 247 U. S. 32, 38 S. Ct. 473, 62 L. Ed. 968, Clarke, J. (diss.), briefly summarized the progress of the law: "This idea that the 'harmonious arrangement' [between competitors] was unlawful was doubtless inspired by the decision in the Trans-Missouri Freight Assoc. Case, 166 U. S. 290, 41 L. Ed. 1007, 17 S. Ct. Rep. 540, rendered in 1897, and he probably shared a then not uncommon notion that the holding company and the merger were devices lawfully available for evading the congressional purpose expressed in the Anti-trust Act. But in the Northern Securities Co. Case, 193 U. S. 197, 48 L. Ed. 679, 24 S. Ct. Rep. 436, this court decided in 1904, that the holding company was a futile device, and in the

American Tobacco Co. Case, 221 U. S. 106, 55 L. Ed. 663, 31 Sup. Ct. Rep. 632, it was decided in 1911, that the merger was also a mere 'subterfuge of form' which the courts would not permit to shield those who violated the act."

47 Elliman v. Carrington & Son, Ltd., [1901] 2 Ch. 275; National Phonograph Co. v. Edison-Bell Consol. Phonograph Co., [1908] 1 Ch. 335; Dunlop Pneumatic Tyre Co. v. Selfridge, 29 T. L. R. 270.

48 Grogan v. Chaffee, 156 Cal. 611, 105 Pac. 745, 27 L. R. A. (N. S.) 295; D. Ghirardelli Co. v. Hunsicker, 164 Cal. 355, 128 Pac. 1041; Garst v. Harris, 177 Mass. 72, 58 N. E. 174; Garst v. Charles, 187 Mass. 144, 72 N. E. 839; Park & Sons Co. v. National Wholesale Druggist Assoc., 175 N. Y. 1, 67 N. E. 136, 62 L. R. A. 632, 96 Am. St. Rep. 578. Cf. Fisher Flouring Mills v. Swanson, 76 Wash. 649, 137 Pac. 144, 51 L. R. A. (N. S.) 522.

whatever form the attempt takes, even though the goods affected by the attempt are manufactured by a secret process, or are protected by the copyright, 50 or patent laws 51 of the United States.

49

The argument has been made that since the law protects patents, copyrights, and secret processes, contracts controlling the resale price of articles thus protected should not be obnoxious to the law. But it has been well said in answer to this argument, "It is the policy of the law to reward individual thought and research by protecting the enjoyment of their fruits; thus the author, 52 the news gatherer, 53 and the owner of an unpatented invention,54 are protected against the piratical use of their peculiar property. A similar protection is extended to the chemist who has discovered a secret formula.55 But it does not follow that because a secret process or formula will be protected against betrayal by those to whom it has been communicated in confidence under a contract for a restricted use,

49 Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S. 373, 31 L. R. A. 376, 55 L. Ed. 502.

50 Bobbs-Merrill Co. v. Straus, 210 U. S. 339, 28 S. Ct. 722, 52 L. Ed. 1086.

51 Bauer v. O'Donnell, 229 U. S. 1, 33 S. Ct. 616, 57 L. Ed. 1041, 50 L. R. A. (N. S.) 1185, Ann. Cas. 1915 A. 150; Straus v. Victor Talking Machine Co., 243 U. S. 490, 37 S. Ct. 412, 61 L. Ed. 866, L. R. A. [1917] E. 1196, Ann. Cas. 1918 A. 955; Motion Pictures Patents Co. v. Universal Film Mfg. Co., 243 U. S. 502, 37 S. Ct. 416, 61 L. Ed. 871, L. R. A. 1917 E. 1187, Ann. Cas. 1918 A. 959; Boston Store v. American Graphophone Co., 246 U. S. 8, 38 S. Ct. Rep. 257, 62 L. Ed. 551, Ann. Cas. 1918 C. 447. The case last cited overruled the decision of Henry v. A. B. Dick Co., 224 U. S. 1, 32 S. Ct. 364, 56 L. Ed. 645, Ann. Cas. 1913 D. 880, which sustained the right of the manufacturer of the patented article to qualify the sales by a condition requiring material essential for working

the machine to be bought from the seller.

52 Donaldson v. Beckett, 2 Brown P. C. 129; Palmer v. De Witt, 47 N. Y. 532, 7 Am. Rep. 480.

53 Exchange Tel. Co. v. Gregory, [1896] 1 Q. B. 147; Board of Trade v. Christie, 198 U. S. 236, 49 L. Ed. 1031, 25 S. Ct. 637; Dodge v. Construction Information Co., 183 Mass. 62, 66 N. E. 204, 60 L. R. A. 810, 97 Am. St. Rep. 412.

54 Peabody v. Norfolk, 98 Mass. 452, 96 Am. Dec. 664; Tabor v. Hoffman, 118 N. Y. 30, 23 N. E. 12, 16 Am. St. Rep. 740.

55 Harrison v. Glucose Sugar, etc., Co., 116 Fed. 304, 53 C. C. A. 484, 58 L. R. A. 915; Thum v. Tloczynski, 114 Mich. 149, 72 N. W. 140, 38 L. R. A. 200, 68 Am. St. Rep. 469; Salomon v. Hertz, 40 N. J. Eq. 400, 2 Atl. 379; Tode v. Gross, 127 N. Y. 480, 28 N. E. 469, 13 L. R. A. 652, 24 Am. St. Rep. 475. See also Maxim Nordenfelt v. Nordenfelt, [1893] 1 Ch. Div. 630, for a review of the English cases.