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Recently contracts of this type have been assailed 8 as a violation of the state laws against trade restraint, and the attack thus far seems to have been fairly successful. Most of the state statutes follow the Sherman law, but in at least three 10 states statutes have explicitly made contracts of this kind unlawful. The language of the latter is somewhat similar to that of section 3 of the Clayton law." This act, however, prohibits such sales (and leases) only in the event that their effect "may be to substantially lessen competition or tend to create a monopoly in any line of business.” 12 Upon the construction of the word "substantially," of course, depends the whole vitality of this section of the Clayton law.
App.) (1916) (patterns). Cf. the curious case of Continental Wall Paper Co. o. Voigt & Sons Co., 212 U. S. 227 (1909) (wall paper).
& This assault is undoubtedly due (a) to che tremendous increase in contracts of this nature and (b) to the widespread publicity given to the provisions of the recent Clayton law concerning such contracts. It may be observed that identical contracts of the same wholesaler have been simultaneously attacked in different states more than once.
, Massachusetts: Rev. L. Mass., 1902, C. 56, § 1, prohibiting such contracts, is absurdly construed to mean nothing, in Butterick Pub. Co. v. Fisher, 203 Mass. 122, 89 N. E. 189 (1909) (patterns).
North Carolina: N. C. PUB. Laws, 1911, C. 167, § 1, subsec. a, is enforced, and the contract held void, in Standard Fashion Co. v. Grant, 165 N. C. 453, 81 S. E. 606 (1914) (patterns).
South Dakota: LAWS OF 1909, c. 224, was held not to prohibit the contract in Sullivan v. Rime, 35 S. D. 75, 150 N. W. 556 (1915) (patterns.)
Wisconsin: Stat. Wis., § 1747 e, held not to prohibit the contract, since only a partial restraint was imposed, in Sullivan v. Rose, 158 Wis. 414, 149 N. W. 158 (1914) (beer). By this
Texas: In Texas such contracts are now expressly made illegal by arts. 7796, 7798, and 7807 of Tex. Civ. Stat. Under an earlier and less specific statute a contract of this nature was held illegal. Simmons v. Terry, 79 S. W. 1103 (Tex. Civ. App.) (1904) (gloves). Recent cases holding such contracts unlawful are Segal v. McCall Co., 184 S. W. 188 (Tex.) (1916) (patterns); W. T. Rawleigh Medical Co. v. Fitzpatrick, 184 S. W. 549 (Tex. Civ. App.) (1916) (drugs); Pictorial Review Co. v. Pate Bros., 185 S. W. 309 (Tex. Civ. App.) (1916) (patterns); T. W. Rawleigh Medical Co. v. Gunn, 186 S. W. 385 (Tex. Civ. App.) (1916) (drugs); Wood v. Texas Ice and Cold Storage Co., 171 S. W. 497 (Tex. Civ. pp.) (1914) (ice); Carroll v. Evansville Brewing Ass'n, 179 S. W. 1099 (Tex. Civ. App.) (1915) (beer). In Celli v. Galveston Brewing Co., 186 S. W. 278 (Tex. Civ. App.) (1916), the court held that the statute was not intended to restrict a landlord in the use of his premises, and that accordingly it did not apply to a brewery which leased its saloon to a “retailer” who contracted to sell the lessor's beer exclusively. It is submitted that whether the contract is or is not a part of a lease or conveyance of realty, is entirely immaterial.
10 Massachusetts, North Carolina, and Texas.
11 38 Stat. 730. This section reads: Sec. 3. That it shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies or other commodities, whether patented or unpatented, for use, consumption or resale within the United States or any territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, or fix a price charged therefor, or discount from, or rebate upon such price, on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.
12 In the first prosecution under this section, leases of patented machinery with restrictions on purchase from the lessor's competitors, which had been held lawful under the Sherman law, were held to be within the inhibition of this section. United States v. United Shoe Machinery Co., 234 Fed. 127 (1916).
Since a number of specific prohibitions are made, it may be that the courts will construe it as at least an advance upon the Sherman law. To do that, however, they would have to hold that "substantially" in the Clayton law means less than “unreasonably” in their construction of the Sherman law. But, unless that is done, the Clayton law, like its predecessor, will be no more than an enactment of the common law.13
The legality of contracts of sale 14 which contain a stipulation that the buyer shall not handle a competitor's goods is, then, to be determined in general 15 by the reasonableness of the restraint thus imposed. That the contracts impose a restraint on trade is clear. That the restraint may be a serious danger to the community is equally clear, for it is easily possible for a wholesaler, by an extensive system of such contracts, to close to all competitors the markets of a community or even of a state.16 Theoretically new retailers would then set up, but the inertia that would have to be overcome renders that mode of relief a most uncertain one. monopoly the public necessarily suffers to at least as great a degree as the wholesaler benefits.17 Against this consideration must be weighed only the wholesaler's contention that such contracts are necessary in order to insure a proper distribution of his goods. What constitutes a reasonable restraint is, of course, a question of fact for the court in each case; but that many of the contracts with “tying" clauses are an unreasonable restraint and a substantial lessening of competition, seems an unescapable conclusion. What is "reasonableness," however, must inevitably depend upon the economic views of our courts, which are based upon the expressed policy of Congress, and, sometimes to a greater degree, upon the desires and needs of business, expressed or unexpressed. The policy of our government is at present expressed inconsistently as well as incoherently.18 And that business in general desires the lawfulness of such contracts as these seems doubtful in the extreme.
13 That contracts of this sort, where the wholesaler and the retailer are in different states, are interstate commerce, and hence to be governed by the Sherman and Clayton laws, is admitted by the Texas courts in the cases in note 9. But they then proceed to apply the law of Texas, upon the theory that part of the contract — the resale of the goods by the retailer is to be performed wholly in Texas. See especially Segal v. McCall Co., supra. It can hardly be doubted that such transactions are interstate commerce, subject to the federal laws, and there is little to support the Texas theory that as regards enforcement they are subject to the state law also. In most cases, in fact, the retailer neither expressly nor impliedly contracts to resell the goods within the state. Even if he did so contract, the application of the state law to other portions of the contract is hardly warranted. Nor does the fact that the prohibited purchase from a competitor may be an intrastate transaction amount to such a warrant. But nevertheless in Peerless Pattern Co. v. Gauntlett Dry Goods Co., and J. W. Ripy & Sons v. Art Wall Paper Mills, supra, also, common law (i. e., state law) was applied to transactions which were really interstate commerce. But cf. J. B. Watkins Medical Co. v. Holloway, 182 Mo. App. 140, 168 S. W. 290, where the correct view is taken. It should be remembered that Congress has power to regulate purely intrastate business, under certain conditions. See Gibbons v. Ogden, 9 Wheat. 1, 204.
14 It should be noticed that the restraint is valid if attached to a contract of agency, in which the goods are sent to the retailer on consignment. Cole Motor Car Co.o. Hurst, 228 Fed. 280 (1915) (motor cars).
15 Some state courts hold the contracts legal because the restraint which they impose is only a partial one. J. W. Ripy & Sons Co. v. Art Wall Paper Mills; Sullivan o. Rose, supra.
16 In reading these cases one is struck by the fact that so many of them involve identical contracts of the same wholesaler and also of the same industry. Especially in the pattern business are these contracts in fashion.
17 Unless such contracts did “substantially lessen competition,” they would hardly be made to the extent that they are now, in so many different industries - ice, beer, patterns, wall paper, gloves, drugs, machinery, motor cars, and bricks.
Is LEGISLATIVE ABOLITION OF THE INJUNCTIVE REMEDY IN LABOR DISPUTES UNCONSTITUTIONAL? — A recent Massachusetts case is a curious commentary on the practical effects of the Newtonian theory of gravitation as applied to government. The defendants, members of a trade union desirous of forcing the plaintiffs, members of a rival organization, to join their number, brought pressure on the latter's employers to compel them to discharge the plaintiffs. A statute provided that no injunction should be granted in any case between employers and employees, or between persons employed and persons seeking employment, unless necessary to prevent irreparable injury to property, and that for this purpose the right to enter into the relation of employer and employee should not be a property right.' Disregarding this statute as violative of the Fourteenth Amendment of the Constitution of the United States the court granted the plaintiff's prayer for an injunction. Bogni v. Perotti, 203 Mass. 26, 112 N. E. 853.
In the first place not much sympathy can be expressed with the technique of the legislation here in question. It involves two assumptions of a highly questionable character: first, that equity will interfere only when the right threatened is a right of property; second, that what was property can cease to be so by legislative fiat. The suggestion of an intent to outflank the Fourteenth Amendment is not a good character for an act to carry on its face. “No statute is a good risk which invites cautious judges to hamstring it.” 2 The plain purpose of the act, however, and the result in fact of all its language is to prevent the use of injunctions in labor difficulties where no violence or injury to tangible property is threatened. The court by its decision must deny the validity of this purpose and result as well as the assumptions of the accompanying language.
The court argues that the right to dispose of one's labor free from the sort of interference here practiced is a property right which the legislature cannot despoil by removing it from the scope of the only effective remedy provided by the law for the specific protection of property. Such action, the court asserts, is to discriminate between this right and
18 For a lucid enumeration of the five economic policies open to us, see Henry R. Seager, “The New Anti-trust Acts,” 30 Pol. Sci. Q. 448. The first — laissez faire- can be of only academic interest now. The others are, in order, enforced competition, (which the first interpretation of the Sherman law expressed), regulated competition (the Sherman law ai present), regulated combination, and government ownership, The Clayton law is apparently based upon a jumbling of the second and the third of these policies.
For a statement of the economic policy back of the Sherman law, see M. S. Hottesheim, “The Sherman Anti-trust Law,” 44 Am. L. Rev. 827, 852. Cf. B. A. Ross, “Freedom of Trade,” supra, at 240. i Mass. ACTS 1914, c. 778.
John M. Maguire, “State Liability for Tort,” supra, p. 36.
other rights of property and to deprive it of equal protection of the laws.
An indispensable preliminary to a solution of this constitutional problem is to visualize a bit of judicial history. When the courts were presented with the question of the legality of labor unions and the methods these organizations might employ to gain their ends, they based their decisions, more or less consciously, upon considerations of social policy.3 In deciding on the legality of such actions as pursued by the defendants in the principal case, courts have reached different conclusions. The Massachusetts Supreme Court, Mr. Justice Holmes dissenting, pronounced against the legality of the conscription of neutrals. This decision on what is essentially a question of social policy the Massachusetts legislature has attempted to reverse by the statute presented in the principal case, but now the court says that the Constitution of the United States forbids any impairment of this recognized property right by elimination of remedies. It must be stated frankly that the court is using the Constitution to impose its views of social policy on the state. Those state courts that recognized the conscription of neutrals equally decided a question of social policy, but as this view coincided with the legislative, no clash occurred on the battlefield of constitutional law.?
But even though this survey shows that we are dealing with a conflict between the social and economic views of two coördinate branches of the government over a problem intrinsically legislative, it is perhaps better to admit that the freedom to contract with regard to labor unrestrained by secondary labor boycotts is now, in view of past decisions, a right of property. Then arises the question whether the legislature had the right to discriminate between this and other forms of property in regard to injunctive remedies. Not only is there a discrimination relative to other
3 See the great opinion by Shaw, C. J., in Commonwealth v. Hunt, 4 Met. (Mass.) 111; also the dissent of Holmes, J., in Vegelahn v. Guntner, 167 Mass. 92, 104, 44 N. E. 1077, 1079. In Plant v. Woods, 176 Mass. 492, 502, 57 N. E. 1011, 1015, the court said: “The necessity that the plaintiffs should join this association is not so great, nor is its relation to the rights of the defendants, as compared with the right of the plaintiffs to be free from molestation, such as to bring the acts of the defendants under the shelter of the principles of trade competition. Such acts are without justification, and are therefore malicious and unlawful.”
* These cases have recognized acts as lawful. National Protective Ass'n of Steam Fitters and Helpers v. Cumming, 170 N. Y. 315, 63 N. E. 369. Lindsay & Co. v. Montana Federation of Labor, 37 Mont. 264, 96 Pac. 127. Parkinson Co. v. Building Trades Council, 154 Cal. 581, 98 Pac. 1027. Contra: Brennan v. United Hatters of No. Am., 73 N. J. Law 729, 65 Atl. 165. Erdman 0. Mitchell, 207 Pa. St. 79, 56 Atl. 327.
5 Plant v. Woods, 176 Mass. 492, 57 N. E. 1011. In his dissenting opinion Mr. Justice Holmes dwells on the nature of the problem involved and the proper mode of approach to a solution.
6 The question involved in this case was presented by another Massachusetts case recently decided. Commonwealth v. Boston & Me. R., 222 Mass. 206, 110 N. E. 264. See the suggestive article of Professor Felix Frankfurter, “Hours of Labor and Realism in Constitutional Law," 29 Harv. L. REV. 353-372.
7 This situation rouses interesting speculation. Suppose that the legislature should declare illegal the compound labor boycott legalized by the courts. It cannot reasonably be imagined that this statute could be attacked as unconstitutional, yet it presents the converse of the principal case. Here the question of property rights cannot be put forward to obscure the legislative nature of the problem.
8 For treatment of this and similar constitutional questions along the proper line of approach, see: Muller v. Oregon, 208 U. S. 412; Ritchie & Co. v. Wayman, 244 III.
species of property, but also to freedom of contract in other than labor situations. The court should not declare unconstitutional this distinction between remedies for different classes of property, unless the classification is clearly arbitrary or unreasonable. Whether this can be said in the case of the legislation now in question need not be finally decided here. It is sufficient to point out that a decision cannot be reached by trying to piece statute and Constitution together like a jig saw puzzle.io There is necessary a thoroughgoing study and appreciation of the facts, as well as of the policy sought to be enforced by the legislative act in question." Only if after such investigation the court is still convinced that the classification is without reasonable basis should it declare the action of the legislature void. The unfortunate method of the statute, and perhaps insufficient pressing in argument of the social data, are undoubtedly responsible for the unsatisfying character of the decision that was rendered.
CONSTITUTIONALITY OF A Tax ON INCOME DERIVED FROM EXPORTS. - A recent case raises the question whether there are not certain sources of income, other than those specifically enumerated in the Federal Income Tax Law of 1913,' which are exempt from taxation. A corporation, whose business consisted largely in exportation, sought to recover such proportion of the corporate income tax as was paid on their export trade. They contended that it was an unconstitutional export tax, but it was held that they might not recover. Peck & Co. v. Lowe, 55 N. Y. L. J. 981 (U. S. Dist. Ct., S. Dist. N. Y.). It is certainly arguable that a tax on net incomes, derived to a large extent from exporting, is a tax on exports. The question is a new and very close one, and can be approached only by analogy and analysis. It is clear that a tax on the various instrumentalities used in exporting is unconstitutional. An income tax, however, attaches to the proceeds after the actual act of exportation is completed, and so the “instrumentalities” cases are not conclusive in
509, 91 N. E. 695; Miller v. Wilson, 236 U. S. 373; People v. Schweinler Press, 214 N. Y. 395, 108 N. E. 639; and Mr. Justice Holmes' dissent in Adair v. United States, 208 U. S. 161, 190.
· Hadacheck v. Sebastian, 239 U. S. 394, 413; Price o. Illinois, 238 U. S. 446, 452.
10 For expressions of the line of approach insisted on, see Dean Pound's article, "Liberty of Contract,” 18 YALE L. J. 454; the paper by Professor Frankfurter referred to in note 6; the discussion in 28 Harv. L. Rev. 790; and an article by Professor Ernst Freund, “Tendencies of Legislative Policy,” 27 INTERNAT. J. ETH. 1, 23–24.
11 There should have been called to the attention of the court for instance the English Trades Disputes Act, 1906, 6 Edw. 7, c. 47, § 3, and the debates that preceded its enactment; also the Australian solution of the problem. See Judge Higgins, "A New Field for Law and Order," 29 HARV. L. Rev. 13. Further discussion of value may be found in Gregory, "Government by Injunction,” 11 Harv. L. REV. 487; Dunbar, "Government by Injunction,” 73 L. QUART. REV. 347; Allen, “Injunctions and Organized Labor," 28 Am. L. Rev. 878; Dean, “Government by Injunction,” 4 GREEN BAG 540; Stimson, “The Modern Use of Injunctions," 10 Pol. Sci. QUART. 189.
38 Stat. At L. 166, 172. V. S. Const., Art. I, sec. 9. • Fairbank o. U. S., 181 U. Ś. 283; U. S. v. Hvoslef, 237 U. S. 1; Thames, etc. Ins. Co. o. U. S., 237 U. S. 19. But see Goodwin, “U. S. v. Hvoslef,” 29 Harv. L. REV. 469, where the doctrine of these cases is harshly criticised.