it appears, under the Sherman Act, fix the price at which every sale could be made in each of these agencies, since the goods are his own property. The law forbids only an agreement among various persons to maintain price, not the instructions by the owner to sell at a given price.

Price Protection.-Supposedly the public derives great benefit from an absolutely free competition between dealers, and the more the dealers are encouraged to cut prices, the greater the supposed benefit. We are just beginning to suspect that this reasoning is seriously mistaken. Price cutting is usually practiced by a very few shops, and these are mostly department and tobacco stores;the management announces that on a certain day it will sell as a "leader" a certain widely advertised standard article at a cut price, each buyer is allowed to purchase only a small amount of the goods, and the total sales of the product are not allowed to go above a certain quantity each day, in order to limit any possible loss on the "leader." The manager in this way attracts many new customers who buy other goods at ordinary prices. But the trade in the leader at all other stores is at least temporarily destroyed and the other dealers finding this to be so, cancel their orders from the manufacturer. When finally the price-cutting store shifts to another "leader" the first product is practically out of the market and its manufacturer must pocket a heavy loss. The public has gained the impression that the regular price of his article is too high. Let us examine briefly both the producer's and the consumer's side of this regulative question.

We must remember that the large manufacturer has changed his methods radically in the last two decades. He is now guaranteeing both the quality and the quantity of his goods, and is putting forth special efforts to create a permanent clientele by satisfying the purchaser in every detail. The very fact that he spends a fortune every year in advertising his brands makes it necessary for him to hold his customers. He no longer aims to take advantage of the trade by marketing a large quantity of doubtful goods to a temporary circle of buyers, but seeks rather to form permanent connections, a permanent trade name, and a thoroughly satisfactory standard of quality and service. This means that he takes the entire responsibility for his goods-in order to do this, he must fix a standard price which will allow a reasonable profit to the retail trade. The price cutter destroys this system, disrupts the permanent foundations of the manufacturer's relations with the retail trade, and undermines the public confidence in the manufacturer's fairness. If the department store could permanently sell goods at the lower price, there could be no valid objection, but it does not. The sole aim is to lure buyers by the offer of a new bargain each week. It would seem a mistaken public policy to protect by law the momentary bargain sale rather than the efforts of years to build up a permanent trade by sound and fair principles of uniform

quality, quantity and price. Rather should price protection be legalized in those cases where a moderate and fair price is fixed.1 The Sanatogen decision is a clear and authoritative statement of the patent law; but it raises the question, how can beneficial and just price-fixing agreements be distinguished from those which are improper and extortionate? Shall both alike be put under the ban of the law, to the loss of the producer, the public, and the small store-keeper, or shall we attempt to separate the wheat from the chaff? Clearly the latter policy is necessary and it is this need that has led to the suggestion of a national commission to examine and approve or forbid price-fixing agreements in interstate business.

Practical Results of the Sherman Act.-From our examination of the Sherman Act we may now draw the following conclusions as to its practical effects upon business and as to the changes which should be made in the law itself:

First, the Act has been very properly applied to many combines which were guilty of predatory, destructive, and immoral practices. It has been a sound policy and has exerted a healthy influence to discourage business piracy. No matter how great its size, no combine should be allowed by law to destroy its competitors systematically by unscrupulous and unfair means. The leading commercial nations of the world refuse to tolerate such practices. In England, both statute and common law forbid them; in Germany also the imperial acts relative to "unlauteren Wettbewerb" prohibit the various forms of trade piracy.

Second, the act has also been applied to many combines because

1 The need for some revision of legal rules which now forbid even reasonable price protection in standard goods has led to the formation of the American Fair Trade League with offices in New York. This society is supporting a measure known as the "Stevens Bill," the main provisions of which are as follows:-manufacturers and producers of trade-marked or specially branded goods circulating in interstate trade may contract with wholesale and retail dealers to fix a uniform price for the resale of their products provided:

(a) that the producer has not a monopoly or control of the market for articles of a similar class of merchandise and has not any agreement or combination with any competitor for the fixing of the prices of articles in the same class; provided also

(b) that the producer shall label the resale price on each article or package; such articles may then not be resold except at the price marked; and provided (c) that the producer files in the U. S. Trade Commission a statement setting forth his trade-mark or special brand and the schedule of prices fixed by agreement with wholesalers and retailers; there shall be no discrimination in prices to dealers nor any special concession, allowance, rebate or special commission in favor of one dealer as against others; provided further

(d) that the dealers buying such goods from the producer may sell them at prices other than those marked in case the dealers retire from business or become bankrupt or the goods become damaged, but only after the dealer has offered the goods to the producer at the price originally paid for them.

It is expected that such a measure, if passed, would protect the manufacturer against bargain sale abuses and would encourage and safeguard the present system of uniform quality, quantity and prices, and in this way directly benefit the consumer.

they were combines or because of their size. Yet many of these have been based upon the soundest economic principles, such as introduction of uniform processes, reduction of waste, use of scientific methods, immediate adoption of new inventions, enforcement of greater steadiness in prices, etc. Such agreements tend to standardize an industry, to render it often both more efficient and more stable in its costs and prices. Here the Sherman Act should never have been applied; its chief purpose should be to prevent, not the growth of large concerns nor the unification of industries, but rather the illicit destruction of competitors. For example, the agreements for price fixing attempted in both the Sanatogen and the Miles Medical Co. cases were, in the main, for a proper purpose; viz., to fix the retail sales price of their products at a reasonable figure. On the other hand, the effort to attach onerous and burdensome restrictions in licensing and selling a patented article to the public was upheld in the Henry v. Dick case, although the words of Chief Justice White, who voted with the dissenting minority, would seem unanswerable. In pointing out the harmful possibilities which the decision entailed upon business, the Chief Justice said: "Take a patentee selling a patented engine. He will now have the right by contract to bring under the patent laws all contracts for coal or electrical energy used to afford power to work the machine, or even the lubricants employed in its operation. Take a patented carpenter's plane. The power now exists in the patentee by contract to validly confine a carpenter purchasing one of the planes to the use of lumber sawed from trees grown on the land of a particular person, or sawed by a particular mill. Take a patented cooking utensil. The power is now recognized in the patentee to bind by contract one who buys the utensil to use in connection with it no other food supply but that sold or made by the patentee. Take the invention of a patented window frame. It is now the law that the seller of the frame may stipulate that no other material shall be used in a house in which the window frames are placed except such as may be bought from the patentee and seller of the frame. Take an illustration which goes home to everyone,―a patented sewing machine. It is now established that, by putting on the machine, in addition to the notice of patent required by law, a notice called a license restriction, the right is acquired, as against the whole world, to control the purchase by users of the machine, of thread, needles, and oil lubricants or other materials convenient or necessary for the operation of the machine." It was this possibility that led to the later passage of remedial legislation in the Clayton Act.1

Third, the act should not apply to railways, because these are already amply regulated by the Commission under the Interstate Commerce law. In its power to fix reasonable rates and serv the Commission is well fortified with sufficient authority to pre 1 See the discussion of this law in the following chapter.

agreements of an extortionate nature between the carriers. This being so, why should we further burden the transport business with a clumsy prohibition against agreements in restraint of trade and interpret this prohibition to mean an agreement to fix freight rates? Such agreements would in no wise injure shippers' interests so long as the Commerce Commission enjoys its present powers. For example, the Northern Securities Company held the stocks of two competing railways, it is true, but this was no reason for its dissolution, since no destructive restraint of trade was proven against it and such restraint could at any time have been prevented under the rulings of the Commission. The Trans-Missouri Freight Association was held to violate the letter of the law, yet its purpose was a conservative and most beneficial one; to-day no business man or publicist advocates universal railway competition in freight rates. For the protection of both railway and shipper, the full control over their relations should be left to the Commission, unhampered by the Sherman Act.

Fourth, from the above, it is clear that the Sherman law should be applied to combines not because of their size, nor because of their purchase of competitors, nor because they are combines, but solely by reason of their effects upon business. If a combination is beneficial, it should be allowed to stand; if it is destructive or extortionate, it should be suppressed. To this end we need some device that will sift out those which, regardless of their size or form, are conducted upon fair, equitable, and efficient principles, from those which are practicing illicit, destructive and oppressive methods. The most practical means yet suggested for doing this is a Federal Trade Commission, with a jurisdiction over the commercial and trading companies corresponding roughly to that of the Interstate Commission over the railways. This proposal, at first greeted with strong opposition and even ridicule, made such rapid headway and gained so many recruits from both radical and conservative classes that it ultimately led to the fourth great step in our national trust policy, which is described in the sections dealing with the trade commission.

REFERENCES

Federal Anti-Trust Decisions, 1890-1912, compiled by James A. Finch, 4 volumes, Washington, Government Printing Office.

JUDSON: Interstate Commerce.

BARNES AND MILNER: Selected Cases.

ELY: Monopolies and Trusts.

STEVENS: Industrial Combinations and Trusts.

RIPLEY: Trusts, Pools and Combinations.

The Annals, Volume 42, July, 1912, “Industrial Competition and Combination."

QUESTIONS

I.

What was the purpose of the Sherman law? What kinds of contracts and agreements does it forbid?

2. Explain its provisions as to monopolies.

3. Show the various criminal, civil and equitable suits which may be prosecuted when the Sherman law is violated.

4. What is the extent of damages which may be granted to injured parties, under the Act?

5. Does the Sherman Act apply to a combination of competing railways to fix freight rates?

6. Would it apply to such a combination if it could be proven that rate agreements between the railways were beneficial to the community?

7. Does the Act apply to combinations limited to the manufacturing business?

8. The Delaware, New Jersey and Pennsylvania farmers, engaged in peach culture, form a peach growers' association. They buy all the available trees in the three States. The government prosecutes them under the Sherman Act and proves their ownership of the peach trees. Is this sufficient?

9. The representatives of railways prosecuted under the Sherman Act for an alleged violation, make answer that it was not the purpose of Congress to repeal the interstate commerce law of 1887 by the Sherman Act of 1890, that the railway business is peculiar and different from other lines of industry, and that Congress intended to regulate trusts not railways by the act of 1890. Is this defence valid? Reasons in full.

10. If the government proved simply a monopoly of the ownership of mines in several States would this ownership be illegal under the Act?

11. A, B, and C manufacture umbrella parts. X and Y buy the parts from them and manufacture umbrellas. Because of competition between A, B and C the price fluctuates so that X and Y are never able to foretell what it will cost them to make an umbrella. X and Y for their own protection as customers, persuade A, B and C to fix a scale of prices by agreement. The attorney general prosecutes A, B and C for violation of the Sherman Act. They answer that the agreement was formed for the protection of their customers and at their customers' suggestion; it is therefore not in restraint of trade in the sense of the Sherman Act. Decision with reasons.

12. The village of "X" advertised for bids for road material. The cracked stone contractors of the entire State agree to allow one of their number to bid low, and the other to bid high. The favored one is to divide his profits with the others. Are they subject to prosecution under the Sherman Act? Reasons in full. 13. A suburban trolley line is formed to run from Philadelphia to Trenton. After the road is constructed a second line is built to compete with it but as there is not sufficient business to maintain both concerns, the older company purchases the second line. Has the Sherman Act been violated? Explain fully with precedent and reasons.

14. The managers of three large manufacturing and selling companies of national scope meet at lunch daily, and talk over prices. At the conclusion of the luncheon they settle upon a price below which they will not sell their product in competition with each other, but they do not make a written contract to that effect. Is this a violation of the Sherman Act? Reasons.

15. On the Board of Trade at D large quantities of grain from various States are sold. The members of the Board who are grain brokers, pass a resolution providing that the regular brokers' commission on each sale shall be 1/10% of the amount of the sale. Does the Act apply? Precedent.

16. Does the Sherman Act apply to a combination of manufacturers and wholesalers, agreeing to a list of higher prices to be charged all wholesalers outside the combination? Reasons.

17. Would it affect a company formed to buy and hold the securities of two competing interstate railway companies? Why? Precedent. Explain what is meant by potential restraint of trade.

18. To a company owning the stock of several competitive manufacturing and trading concerns located throughout the United States? Explain.

19. To a series of manufacturing and trading companies each of which own some of the others' stock, the liry of all the companies being determined by the same persons? Reasons.