of these questions came before the Court in the case of the United States v. Trans-Missouri Freight Association, 166 U. S. 290; 1897. This Association was a combination of several western railways formed for the purpose of fixing charges on competitive freight traffic west of the Missouri River. The agreement did not prevent the railways from competing with each other by offering better service, but only fixed a minimum rate below which the railways forming the association were not to bid in seeking freight traffic. When prosecuted under the Sherman Act the association claimed that the trust law was not intended to cover the railways, since they were already subject to the Interstate Commerce Act, which amply protected the shipper and the general public, and prevented unreasonable freight rates. They contended further that the whole purpose of the Sherman Act was to suppress industrial and commercial combinations, which had been formed to exploit and oppress the consumer, whereas the entire question of railway rates had been separately confided by Congress to the Interstate Commerce Commission. This argument, though very strong, was not upheld by the Court. On the contrary, it ruled that the Sherman Act was intended to apply to all combinations in restraint of interstate trade, whether composed of commercial concerns or of railways, and that the Act supplemented the existing railway laws by adding new and stringent provisions forbidding restraint of trade.

On the question of reasonableness of the combination the argument of the defence was even stronger. It was shown that the main purpose of the Association was to prevent ruinous cutting of freight rates. The disastrous rate wars which so demoralized and injured the railway business, drove many companies into bankruptcy and eventually injured the shipper himself by making the railway weak, inefficient and less able to offer the facilities needed. In order to avoid these devastating conflicts between the carriers some union of the competitive interests must be formed to fix a minimum charge which all lines would observe. This, the Association urged, had been its work and its reasonableness and even necessity could not be doubted by anyone familiar with transportation conditions. But the Supreme Court refused to accept this view. Although four of the Justices dissented from the opinion, the majority held that the Sherman law forbade every agreement or combination whether reasonable or unreasonable, if formed to restrict competition in interstate commerce. The Court ruled that the words, "Every agreement, in restraint of trade" were conclusive. This decision was reaffirmed and strengthened in the Joint Traffic Association case, 171 U. S. 505; 1898, in which the eastern traffic lines were prohibited from making a similar agreement because it would restrain competition among the lines concerned. The rule was later modified in the Standard Oil and American Tobacco cases described below.

Local Exchanges Dealing in Interstate Products.-The fourth question is: Does the law prohibit an exclusive combination of local dealers known as an "exchange" where the members deal in cattle which may have been shipped in from another State? In the cases of Hopkins v. United States and United States v. Anderson, 171 U. S. 578 and 604; 1898, the legality of the Traders' Live Stock Exchange of Kansas City was disputed. An agreement among purchasers of cattle for the purpose of regulating and controlling the local business among themselves had been entered into, and one of the rules provided that the members of the Exchange should not deal with any yard trader who was not a member of the Exchange. The Supreme Court upheld the legality of such an Exchange under the Sherman law, declaring "there is no evidence that these defendants have in any manner other than by the rules above mentioned hindered or impeded others in shipping, trading, or selling their stock, or that they have in any way interfered with the freedom of access to the stock yards of any and all other traders and purchasers, or hindered their obtaining the same facilities which were therein afforded by the stock yards company to the defendants as members of the Exchange, and we think the evidence does not tend to show that the above results have flowed from the adoption and enforcement of the rules and regulations referred to." The Court seemed to feel that any burden which the Exchange placed upon trade was so slight and so indirect as to be entirely negligible.

Closely related to the Live Stock Exchange cases is the decision in Board of Trade of Chicago v. Christie Grain & Stock Company, 198 U. S. 236; 1905. Here the Board of Trade had made contracts with telegraph companies by which it furnished quotations of the transactions in the wheat, grain and provision pits of the Board to the telegraph companies, to be distributed to members and subscribers, with the explicit understanding that the telegraph companies would not furnish these quotations to any bucket shop or place where they would be used as a basis for bets or illegal contracts. The telegraph companies submitted applications for these quotations to the Board for investigation. The Christie Company secured the quotations in some way not disclosed. The Board of Trade asked for an injunction against the Christie Company on the ground that the latter was using the property of the Board namely its quotations, wrongfully, and without authorization. The Christie Company answered that the contract between the Board and the telegraph company to restrict the quotations was an agreement in restraint of interstate trade, since the quotations covered transactions of national commerce. The defendant claimed that the true purpose was to exclude all persons who did not deal through members of the Board of Trade. The Federal Supreme Court, however, ruled that the evidence showed "a scheme to exclude bucket shops as shown and proclaimed, and the defendants called this an attempt at a monopoly in bucket shops. But it is simply a restraint on the

acquisition for illegal purposes of the fruits of the plaintiff's work." Accordingly an injunction was granted forbidding the Christie Co. to use the quotations in the unauthorized way mentioned.

Agreements not to Compete.-Fifth, is an agreement between. various producing, trading companies not to compete on city contracts, prohibited by the Act? This interesting and important question was decided in Addyston Pipe Co. v. United States, 175 U. S. 211; 1899. It was proven that six different shippers located in various States had combined in a pool to control the manufacture and sale of cast iron pipe. They agreed to maintain prices, at the same time keeping up a show of public competition in supplying city governments by making separate bids for contracts but offering these bids in such a way as to prevent any real competition between the concerns in the pool. The various companies agreed in advance as to which should secure the contract; this concern bid low and its fellow members in the agreement bid high. The Court held this to be a combination in restraint of interstate commerce in the sense of the Sherman Act and therefore illegal. Although a monopoly of manufacturing was not illegal, an agreement to suppress competition in the interstate sale and shipment of an article was forbidden by the law. A similar point arose in Montague & Co. v. Lowry, 193 U. S. 38; 1904. A number of manufacturers and dealers in tiles, mantels and grates in California and other States had formed a combination by which: first-dealers would not purchase materials from manufacturers who were not members of the Association. Second-dealers and manufacturers would not sell tiles for less than official list prices to persons not members of the Association; members to receive a discount of 50%. Membership was fixed by certain rules, one of which provided that the applicant must carry $3000 worth of stock. An outside firm, not a member of the Association and not carrying $3000 worth of stock, finding its business injured by the agreement, brought suit for damages under the Sherman Act. The Court held that the combination was in substance an agreement to restrain trade between the States, in that it was intended and did prevent the free and unrestricted purchase and sale of goods and obstructed the business of those who were not members, that it was forbidden by the Act and that the injured party could recover three times the actual damages caused by the combination.

The Holding Company.-The sixth question arising under the law was: Can a "holding company" be formed to own and control the stock of several competing companies? This question first arose in the merger of certain railway lines leading to the Northwest notably the Great Northern and Northern Pacific. In order to accomplish this merger the Northern Securities Company was formed and purchased the stock control of each of the two competing lines mentioned. The merger was attacked in the United States courts and in 1904 was declared illegal by the Supreme

Court in Northern Securities Company v. United States, 193 U. S. 197; 1904, on the ground that it brought about by indirect but effective means the suppression of competition between the Northern Pacific and Great Northern Railways. The Court declared that even though such competition was not immediately suppressed as a result of the merger, yet the possible suppression and the evident attempt to secure it were sufficient grounds to render the merger illegal. The Court therefore ordered that the stock of the two companies be distributed proportionally among the share holders in the Northern Securities Company.

The great turning point in the interpretation of the Act came in 1911, when the question of the legality of the holding company was again presented in the famous Standard Oil case, Standard Oil Co. v. U. S., 221 U. S. 1; 1911. The issue here was at root a simple one. The Standard Oil Company of New Jersey with $100,000,000 capital was a holding corporation which owned the stock control of nineteen subordinate and previously independent companies engaged in the manufacture, transportation and sale of petroleum and its products. In 1906, a government suit was brought to dissolve the combine, as a violation of the Sherman Act. The government contended that the holding company was a device by which the Standard Oil interests had suppressed all competition among the various subordinate concerns. The Circuit Court adopted this view and declared the Standard Oil Company of New Jersey to be a combination in restraint of trade. An appeal was taken to the Supreme Court and in May, 1911, that tribunal upheld the decision and required the Standard Oil Company to dissolve its combination with the subsidiary companies within six months. The Court however declared that the mere existence of a combination in commerce is not always illegal unless it involves a clearly proven plan to restrain trade and competition. The courts must therefore decide "in the light of reason "in each case whether the combination complained of is intended to destroy competition and to make use of illegitimate means of expanding its business or whether, on the other hand, it is an honest and legitimate attempt to introduce economies, uniform systems and methods and the benefits of large scale management, and involves only such restraint of trade as is natural and reasonable. In the latter case it is not a violation of the Sherman Act. The Tobacco case, U. S. v. American Tobacco Company, 221 U. S. 106; 1911, while slightly different in form, involved the same legal principle. The tobacco company together with its accessory concerns controlled several subsidiary and previously competitive companies and thereby directed their policy. Owing to its aggressive methods in attempting to destroy competitors it was prosecuted in 1906 under the Sherman Act and after an appeal to the Supreme Court, it too was declared to be a monopoly in violation of the Act. The Court ordered a reorganization of the companies involved in the combination, within eight

months, failing which a receiver would be appointed to wind up their affairs. The Oil and Tobacco decisions are of value because they permit the forming of combinations based on greater efficiency, but forbid the destructive and extortionate combination whose sole purpose is to smother competition in order to squeeze higher prices. This principle is the much discussed "rule of reason" set forth in both decisions. The rule is simply expressed by the question"what is the purpose and effect of the combine?" If the injured complainant or the public prosecutor can produce evidence showing a destructive or extortionate intention or effect on the part of the combination, the law has been violated, and the combine may be dissolved by order of the court, its leaders fined and imprisoned, and injured parties may recover three times the damages suffered.

The Rule of Reason Applied.—The rule of reason was still more clearly presented by the decision in United States v. Terminal R. R. Association of St. Louis, 224 U. S. 383, 1912, which applied the law to an entirely different set of conditions. In 1889, Jay Gould had formed the St. Louis Railroad Terminal Association, composed of several railways entering the city, for the purpose of acquiring and developing terminal facilities for the common use of the carriers. The agreement provided that the terminal company should be controlled by the Board of Directors, one director from each of the proprietary companies owning the terminal stock. New members should be admitted to the association only with the unanimous consent of all the proprietary companies and upon payment of such a consideration as the directors might determine. In order to prevent future competition and to insure a monopoly of the avenues of entrance to the city each railroad had to agree to use only the terminal company's facilities in entering St. Louis. Each line must also agree not to build its own bridges and tunnels nor establish its own ferries into the city. The terminal company gradually secured by purchase or lease all the facilities, bridge approaches and ferries crossing the Mississippi River at that point and acquired complete control of all the terminal entrances and exits of the St. Louis region. In doing so it established its own rates for the territory under its control and allowed none of the entering lines to bill their freight or passenger traffic to St. Louis proper, but required them to bill to East St. Louis on the Illinois side of the river, and thence the terminal company rebilled to St. Louis. The attorney general having begun a prosecution against this combination as being in restraint of trade under the Sherman Act, and the case coming to the Supreme Court, that tribunal declared that the economic advantages to the city and to the railway lines from the unification of terminal facilities was clear and undoubted; that it was neither advisable nor profitable to the city or the railways to have a complete duplication of such facilities for each railway because of the prohibitive cost of bridges over the river and tunnels through the high river banks. In spite of this undoubted economic